oversight

Semiannual Report - October 01, 2015 - March 31, 2016

Published by the Department of Education, Office of Inspector General on 2016-03-31.

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

                               Semiannual Report to Congress, No. 72
                                                         October 1, 2015–March 31, 2016




U.S. Department of Education 4 Office of Inspector General
Office of Inspector General
Kathleen S. Tighe
Inspector General

May 2016

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. 72.




Please Note:
The Inspector General’s Semiannual Report to Congress, No. 72 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
On behalf of the U.S. Department of Education               •	   A Federal court ordered the Lacy School of
(Department) Office of Inspector General (OIG), I                Cosmetology, a chain of now-closed for-profit
present this Semiannual Report on the activities and             schools in South Carolina, and its owner to pay
accomplishments of this office from October 1, 2015,             $9.2 million for failing to comply with numerous
through March 31, 2016. The audits, investigations,              Federal student aid program requirements.
and related work highlighted in the report are
products of our continuing commitment to promoting          •	   Our audit of the Department’s Office for Civil
accountability, efficiency, and effectiveness through            Rights found that the office resolved discrimina-
our oversight of the Department’s programs and                   tion complaints in a timely and efficient manner
operations.                                                      and in accordance with applicable policies and
                                                                 procedures and did not have a large backlog of
Over the last 6 months, we completed 48 investigations           unresolved cases. We did note, however, that
involving fraud or corruption related to the                     increasing workload and decreasing resources
Department’s programs and operations, securing more              could have a negative impact on its complaint
than $185.7 million in settlements, fines, recoveries,           resolution over time.
forfeitures, and savings. In addition, as a result of our
investigative work, criminal actions were taken against     •	   Our FY 2015 Federal Information Security
a number of people, including school officials and               Management Act review found that the
service providers who cheated the students they were             Department and the Federal Student Aid office
in positions to serve. We also issued 17 audit and other         (FSA) made progress in strengthening their
reports that contained recommendations to improve                information security programs; however, weak-
program operations. The following are some examples              nesses remained and the Department-wide
of the results of our audits and investigations over the         information systems continued to be vulnerable
last 6 months.                                                   to security threats.

  •	   Education Management Corporation, the second         •	   Bard College, a nonprofit school based in New
       largest for-profit educational company in the             York, agreed to pay $4 million to resolve allega-
       country, agreed to pay $95.5 million to settle            tions that it received funds under the Teacher
       allegations that it violated the incentive com-           Quality Partnership Program despite failing to
       pensation ban by paying admissions personnel              comply with the conditions of the grant and
       based on the number of students they recruited            that it awarded, disbursed, and received Federal
       to the schools. This landmark settlement also             student aid funds at campus locations before
       resolved three additional False Claims Act claims         such locations were accredited or before noti-
       filed against the corporation and a consumer              fying the Department, which violated regulations
       fraud complaint filed by 40 State Attorneys               as well as the school’s Program Participation
       General involving deceptive and misleading                Agreement.
       recruiting practices.                                •	   Our audit of actions the Department has taken,
  •	   Our examination of the Department’s reviews               including the use of management certifica-
       of student loan servicers’ compliance with the            tions, to ensure the accuracy and reliability of
       Servicemembers Civil Relief Act requirement to            K–12 data reported in its Annual Performance
       provide eligible servicemembers with an interest          Report and select Office of Elementary and
       rate reduction on certain Federal student loans           Secondary Education K–12 data found that
       identified flaws and errors in the Department’s           although the Department took actions to ensure
       review processes that rendered statements made            the completeness and reasonableness of the
       in a Department press release on the success              data it reported, it needs to improve controls
       of the program unsupported and inaccurate.                to support the accuracy of data reported by
                                                                 State educational agencies.
  •	   Enterprise Recovery Systems, Inc., a for-profit         general community to provide our nation’s taxpayers
       debt collection agency under contract with              with assurance that the Federal Government is using
       the Department, agreed to pay more than                 their hard-earned money effectively and efficiently.
       $1.3 million to settle allegations that its loan pro-
       cessors designated some student loan accounts
       as having a signed rehabilitation agreement
       when, in fact, it had not obtained those agree-
       ments, resulting in it making false claims for          Kathleen S. Tighe
       payment from the Department.                            Inspector General
  •	   Our investigations led to criminal actions against
       67 K–12 school officials, vendors, and service
       providers. This includes 51 people affiliated with
       Rocket Learning tutoring company for partici-
       pating in a nearly $1 million fraud scheme in
       Puerto Rico, and the son of a U.S. Congressman
       who was sentenced to 5 years in prison and
       was ordered to pay more than $1.1 million in
       restitution for fraud in Pennsylvania.

  •	   For FY 2015, although the Department and FSA
       received a clean audit opinion on their financial
       statements, auditors identified a significant
       deficiency involving information technology
       security, which can increase the risk of unau-
       thorized access to the Department’s systems.

  •	   Actions taken in 29 investigations into student
       aid fraud led to settlements, fines, restitutions,
       recoveries, and forfeitures totaling more than
       $120 million and led to criminal actions against
       52 people.

In this report, you will find more information on these
efforts, as well as summaries of other audits issued and
investigative actions taken over the last 6 months. I am
very proud of the results of this work, that criminals
are behind bars, and that the Department has before it
recommendations for improvements from our reports.
Our recommendations, when implemented, will help
prevent fraud and abuse, protect student interests,
improve oversight and monitoring, and recoup taxpayer
dollars.

In closing, I want to thank you for your support of this
office. I look forward to continuing to work with you,
the Department, and my colleagues in the inspector
                                                          Contents
GOAL 1
Improve the Department’s ability
to effectively and efficiently
                                                 1
implement its programs	

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



                                                                                       11




GOAL 3
Protect the integrity 

                                                     35
                                                                                GOAL 4

                          25
of the Department’s
                                                           Contribute to improvements in
programs and operations
                                                          Department business operations




                                     Annexes and                            Acronyms and
                                   Required Tables                          Abbreviations


                                        49                                  63
Improve the Department’s abilityGoal 1
    to effectively and efficiently
        implement its programs.
                                               Office of Inspector General Semiannual Report  3




O       ur first strategic goal reflects our mission to promote the efficiency
        and effectiveness of the U.S. Department of Education’s (Department)
        programs. To achieve this goal, we conduct audits, investigations, and
other activities that examine Department programs impacting its mission to
promote student achievement and preparation for global competitiveness by
fostering educational excellence and ensuring equal access. 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
                   During this reporting period, we issued five audits specific to this goal, including
                   four reports focused on data quality. Three of these reports involved the quality of
                   data included in State vocational rehabilitation agency performance reports. States
                   that receive Department vocational rehabilitation funding must submit annual
                   performance reports to the Department’s Rehabilitation Services Administration (RSA)
                   that include required data to show whether the vocational rehabilitation agency is
                   meeting minimum levels of performance levels established by the grant program.
                   Our audits sought to determine whether the State agencies and local educational
                   agencies (LEAs) included in our review had adequate internal controls to ensure that
                   the data they reported to RSA were accurate, complete, and supported. The fourth
                   report involved data quality associated with the $1 billion Carl D. Perkins Career and
                   Technical Education Improvement Act of 2006 (Perkins IV). States that participate
                   in the Perkins IV program are required to annually report aggregate data on core
                   indicators of the performance of students receiving these funds. We examined
                   whether the Department had developed and implemented control activities that
                   provided reasonable assurance that States submitted reliable Perkins IV program
                   performance data and whether States took corrective action when the Department
                   or others identified unreliable data or inadequate program performance results.

                    Our fifth audit related to this goal was an audit of the Massachusetts Department of
                   Elementary and Secondary Education’s efforts to ensure that LEAs took timely and
                   appropriate action to correct single audit findings. The Massachusetts Department
                   of Elementary and Secondary Education is responsible for advising LEAs of the
                   requirements associated with the use of the funds and ensuring that they comply
                   with those requirements. As single audits are often the only on-site review of how
4  Office of Inspector General Semiannual Report




LEAs spend Federal dollars, correcting any findings identified in single audits is a
critical tool in protecting Federal funds from fraud, waste, and abuse. Summaries
of these audits follow.

Internal Controls Over Quality of Vocational Rehabilitation
Data Included in Performance Reports
We performed three audits that sought to determine whether State agencies and
LEAs had adequate internal controls in place to ensure that the data reported
to RSA was accurate, complete, and supported. The reports we issued covered
performance reports submitted by vocational rehabilitation agencies in California,
Ohio, and Pennsylvania.

California
We found that the California Department of Rehabilitation did not have adequate data
quality controls to ensure that information it reported to RSA was accurate, complete,
and adequately supported. Specific control weaknesses we identified were (1) lack
of an adequate control to prevent staff from changing the date that a participant’s
case was closed in its case management system; (2) insufficient requirements that
personnel maintain documentation to corroborate key dates for application, eligibility,
case closure, and employment data; (3) lack of guidance for determining effective
dates for participants’ plans; and (4) insufficient manager oversight to provide
assurances that data were accurate and required documentation was maintained.
Our testing of data that California Department of Rehabilitation reported to RSA
showed that most of the data elements in our review contained significant data
errors (estimated error rates exceeding 5 percent) that could undermine RSA’s ability
to effectively evaluate the California Department of Rehabilitation’s performance
or a significant unverifiable data rate (estimated unverifiable data rate exceeding
5 percent) that would raise questions about the reliability of data that it reported.
We made seven recommendations to address the weaknesses identified, including
that the Commissioner of RSA require the California Department of Rehabilitation
to implement system controls that prevent vocational rehabilitation staff from
altering closure dates and establish and implement controls that ensure that the
dates from the notices of eligibility and closure reports are accurate. The California
Department of Rehabilitation disagreed with many parts of our findings but agreed
with many of our recommendations.

Ohio
For the time period reviewed, we determined that the Opportunities for Ohioans with
Disabilities (Ohio) had adequate internal controls to ensure that the data it reported
to the RSA were complete; however, it did not have adequate internal controls to
ensure that the data it reported in its Case Services Report (RSA-911) were accurate
and adequately supported. Specifically, we found that Ohio (1) lacked policies and
procedures to require verification of the data entered into participants’ case files and
(2) lacked an adequate monitoring process to ensure that data were accurate and
required documentation was maintained in participant case files. In addition, our
testing of the data that Ohio reported to RSA found a significant number of incorrect
and unverifiable data entries used to calculate Ohio’s performance indicator results.
Consequently, we have no assurance that the performance indicator results that RSA
                            Office of Inspector General Semiannual Report  5




calculated were reliable. RSA uses the performance indicator results to determine
whether Ohio meets RSA’s established evaluation standards. As a result, RSA may have
improperly determined Ohio’s successful performance on the evaluation standards.
We made several recommendations to address these findings, including that Ohio
establish and implement enhanced data quality controls, such as establishing
and implementing policies and procedures to ensure that all required vocational
rehabilitation case documents are completed and maintained in participants’ case
files and all required vocational rehabilitation case data recorded in its database
are supported by adequate source documentation. Ohio partially agreed with our
findings and agreed to all of our recommendations.

Pennsylvania
For the time period reviewed, we found that the Pennsylvania Department of
Labor and Industry, Office of Vocational Rehabilitation (Pennsylvania) had adequate
internal controls to provide reasonable assurance that the data it reported in its
RSA-911 were complete, but it did not have adequate internal controls to ensure
that the data were accurate and adequately supported. Specifically, we found that
Pennsylvania lacked policies and procedures to require verification of the data
entered into participants’ case files and for its RSA-911 reporting process and lacked
an adequate monitoring process to ensure that data were accurate and required
documentation was maintained in participant case files. In addition, we found that
Pennsylvania did not have written policies and procedures for its RSA-911 reporting
process. Our testing of data that Pennsylvania reported to RSA found a significant
number of unverifiable data entries for data elements that RSA used to calculate
Pennsylvania’s performance indicator results. Consequently, we have no assurance
that the performance indicator results that RSA calculated were reliable. RSA uses
the performance indicator results to determine whether Pennsylvania meets RSA’s
established evaluation standards. As a result, RSA may have improperly determined
Pennsylvania’s successful performance on the evaluation standards for the reporting
period. We made several recommendations, including that Pennsylvania establish and
implement enhanced data quality controls, such as establishing and implementing
policies and procedures to ensure that all of its required vocational rehabilitation
case documents are completed and maintained in participants’ case files and that
all required case data recorded in the vocational rehabilitation database agrees to
source documentation. We also recommended that Pennsylvania develop written
policies and procedures for its RSA-911 reporting process. Pennsylvania did not
agree with all of our findings or recommendations.

Internal Control Over Quality of Perkins IV Program
Performance Data
Based on our audit of the Department’s Office of Career, Technical, and Adult
Education and five States (Arkansas, Arizona, Minnesota, Vermont, and West
Virginia), we concluded that the Department had developed and implemented
control activities that provided reasonable assurance that States submitted reliable
Perkins IV program performance data to the Department. We also found that the
Department had developed and implemented control activities that provided
reasonable assurance that States and subrecipients took corrective action when the
Department or others identified unreliable Perkins IV program performance data
6  Office of Inspector General Semiannual Report




or inadequate Perkins IV program performance results. However, we determined
that the Department did not retain all required documentation pertaining to its
monitoring of States’ implementation of corrective actions for Perkins IV program
findings that it identified in its monitoring reports issued on or before January 26,
2015. Based on this finding, we suggested that the Department ensure that it
adheres to its policies and procedures for obtaining and retaining monitoring and
oversight documentation. The Department generally agreed with our finding and
our recommendation.

Massachusetts Department of Elementary and Secondary
Education’s Oversight of Local Educational Agency Single
Audit Resolution
We found that the Massachusetts Department of Elementary and Secondary
Education’s (Massachusetts) oversight of LEA single audit resolution was not sufficient.
Specifically, we found the following.

    •	   Massachusetts did not always work collaboratively or communicate effectively
         with LEAs that had audit findings to ensure that the LEAs took timely and
         appropriate corrective action. We found this to be the case even for those
         LEAs that had significant audit findings that repeated over many years.

    •	   Massachusetts did not have internal controls that were sufficient to ensure
         that it provided adequate oversight of the LEA audit resolution process.
         Massachusetts did not have written policies and procedures identifying
         the Federal requirements for SEA oversight of LEA single audit resolution
         and did not track individual audit findings or follow up on the status of
         corrective actions. Massachusetts also did not have a quality assurance
         process to periodically evaluate its oversight of LEA single audit resolution
         and thus had no means to systematically detect errors, control weaknesses,
         or noncompliance with regulatory requirements.

    •	   Massachusetts did not appear to make LEA audit resolution a high priority,
         as only one staff person worked on audit resolution activities and only on
         a part-time basis.

Because of weaknesses in its oversight of LEA single audit resolution, Massachusetts
did not always identify and require LEAs to implement appropriate corrective actions,
sometimes resulting in lengthy delays in LEAs implementing necessary corrective
actions that would correct past deficiencies. Further, repeat audit findings may
have occurred unnecessarily and Federal funds may not have been collected and
remitted back to the U.S. Treasury. In addition, none of the management decision
letters issued by Massachusetts that we reviewed met all Federal requirements for
content.

We made a number of recommendations to the Department to require Massachusetts
to bring its oversight of LEA single audit resolution into compliance with applicable
Federal requirements and improve associated internal controls. This included that
Massachusetts work proactively with all LEAs that have single audit findings and
expand its audit resolution activities for repeat findings, especially when repeat
findings have or may have significant program or fiscal impacts. Massachusetts
                            Office of Inspector General Semiannual Report  7




acknowledged shortcomings in its oversight of LEA single audit resolution but
disagreed with some parts of our finding. Massachusetts stated that it intended
to review all of our recommendations and make improvements to its processes as
warranted.


Recovery Act Investigations
Since the enactment of the Recovery Act, the OIG has initiated 227 criminal and
civil fraud investigations of various schemes involving improper use of Recovery Act
funds. These investigations have resulted in more than 380 criminal convictions and
more than $1.3 million in recoveries. Below is an example of one of our Recovery
Act investigations.

Civil Complaint Filed Against School and its Former
Superintendent (Texas)
A False Claims Act complaint was filed against the superintendent of Sendero
   Academy, a prekindergarten through 12th grade charter school with two campuses
         in Texas. The complaint alleges that the superintendent and the school
            violated the False Claims Act by failing to disclose the superintendent’s
              felony conviction on the school’s charter school application and
              governance forms. The superintendent and the school also allegedly
              submitted a fraudulent voucher for payment of Recovery Act funds
              to a bogus vendor to cover the cost of playground equipment that
             the superintendent purchased separately at auction. During the time
           period of the complaint, Sendero Academy received more than $117,200
       in Recovery Act funds.

Investigations of Charter Schools
We have conducted a significant amount of investigative work involving charter
schools. From January 2005 through March 31, 2016, the OIG opened 71 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. Below is an example of one of our charter school investigations.

Former Charter School Officials Sentenced (Pennsylvania)
In previous Semiannual Reports, we highlighted our criminal investigation involving
the founder of four charter schools in the Philadelphia area and three of her
associates, all of whom were indicted on charges of conspiracy and fraud. During
this reporting period, her former business manager and the chief executive officer
of Planet Abacus, one of the charter schools, were sentenced for working with
the founder to create, alter, and falsify contacts, financial records, board meeting
minutes, board resolutions, and other records in order to cover up more than
$6.5 million they stole from the schools’ coffers. The former business manager was
sentenced to serve 3 years of probation and was ordered to pay a fine of $3,500,
and the former school chief executive officer was sentenced to 3 years of probation
and was ordered to pay more than $69,100 in restitution.
8  Office of Inspector General Semiannual Report




Investigations Involving Other
Program Funding
Below is an example of our work involving abuse of 21st Century Community
Learning Center funding.

Federal Jury Convicts 21st Century Community Learning
Centers Grantee (Arkansas)
The owner of Askia Learning Concepts, a for-profit organization, was found guilty
of theft. The owner embezzled more than $149,200 of the school’s 21st Century
Community Learning Center program funds, funds that were awarded to the
company to provide educational services to students at Strong High School.
                                                          Office of Inspector General Semiannual Report  9




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

   •	   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.

Review of Legislation, Regulations, Directives, and Memoranda
   •	   H.R.4180, the Fraud Reduction and Data Analytics Act of 2015. The OIG provided comments to
        OMB suggesting the bill’s data collection provisions be clarified so it is consistent with the Inspector
        General Act of 1978, 5 U.S.C. app. 3 § 7, which requires OIGs not to disclose the identity of a complainant
        without consent unless the Inspector General determines that disclosure is unavoidable during the
        course of an investigation.

   •	   Data Sharing Toolkit for Communities: How to Leverage Community Relationships While
        Protecting Student Data. The OIG suggested to the Department that the toolkit could benefit from
        additional discussion of districts’, States’, and others’ responsibilities from a systems security standpoint,
        as unauthorized access and disclosure of students’ personally identifiable information is a violation of
        their privacy and can lead to fraud and abuse if such information is obtained by bad actors.
                                   Goal 2
Strengthen the Department’s
efforts to improve the delivery
of student financial assistance.
                                              Office of Inspector General Semiannual Report  13




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 fraud, waste, and abuse, but also to
protect the interests of the next generation of our nation’s leaders—America’s
students.




                   Audits and Reviews
                    The Department disburses about $150 billion in student aid annually and manages
                    an outstanding loan portfolio of $1.2 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 and the Federal
                    Student Aid (FSA) office are responsible for administering and overseeing the
                    student aid programs. The Office of Postsecondary Education 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 should take to better protect the interest
                    of students. Summaries of these reports follow.

                    Servicemembers Civil Relief Act
                    In August 2015, U.S. Senators Patty Murray, Elizabeth Warren, and Richard Blumenthal
                    requested that the OIG conduct an independent examination of the adequacy and
                    accuracy of the Department’s reviews of student loan servicers’ compliance with the
                    Servicemembers Civil Relief Act requirement to provide eligible servicemembers
                    with an interest rate reduction on certain Federal student loans. Concerns were
                    raised about the Department’s conclusion contained in its May 26, 2015, press
                    release that “in less than 1 percent of cases, borrowers were incorrectly denied the
                    6 percent interest rate cap required by the laws.” Based on our review, we identified
                    flaws in the Department’s sampling design that resulted in the Department testing
                    few borrowers eligible for the Servicemembers Civil Relief Act benefit, errors in the
14  Office of Inspector General Semiannual Report




program reviews it conducted, and inconsistent and inadequate corrective actions
for the errors it identified for the period reviewed. As a result, we determined that
the Department’s press release of May 26, 2015, was unsupported and inaccurate. In
response to our review, the Department stated that it was a management decision to
not require further corrective actions for periods reviewed due to limited servicing
errors identified and that the decision was not primarily based on a statistical analysis.
To address the issues with servicemembers’ benefits, the Department designed new
procedures that, if properly implemented, should provide for all eligible borrowers
to receive the Servicemembers Civil Relief Act benefit as of July 2014.

Functionality of the Debt Management Collection System 2
The audit sought to determine whether FSA accurately assessed the operating status
of its Debt Management Collection System 2 (DMCS2), FSA’s system for managing
defaulted student loans, which it indicated to be fully or partially functioning,
including through workaround procedures. We found that FSA did not always
accurately assess the operational status of the fully or partially operational DMCS2
functions, processes, and subprocesses. In addition, FSA did
not sufficiently document its validation assessments. As a
result, there is a risk that FSA did not accurately assess the
operational status of additional DMCS2 functions, processes,
and subprocesses reported as fully or partially operational.
Further, inaccurately assessed statuses could hamper FSA’s new
DMCS2 contractor’s efforts to make DMCS2 fully operational.         Inaccurately assessed
We also found that FSA did not provide consistent and               statuses could hamper the
effective instructions to servicers to correct inaccurate loan
balances in DMCS2 and, as a result, inaccurate loan balances        new contractor’s efforts
remained in DMCS2. Finally, FSA did not adequately oversee
debt accounts in DMCS2 that were not assigned to a private          to make DMCS2 fully
collection agency and, as a result, there was no assurance
that debt accounts were properly processed in DMCS2.                operational.
We made a number of recommendations to address the weaknesses identified,
including that FSA adequately monitor and validate the implementation and
operational statuses of DMCS2 functions, processes, and subprocesses; that it develop
and implement validation procedures, including documentation requirements
for assessing the operational statuses of all DMCS2 functions, processes, and
subprocesses; and that it test and validate that the procedures for correcting
inaccurate loan balances in DMCS2 operate as intended. FSA agreed with our findings
and our recommendations and stated that it had taken steps to ensure the full
functionality of DMCS2 operations. This was the third audit of DMCS2 that the OIG
had conducted over 3 years. The two earlier reports were highlighted in previous
Semiannual Reports to Congress and were discussed at Congressional hearings.

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
                           Office of Inspector General Semiannual Report  15




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.

Landmark $95 Million Civil Settlement Reached With
Education Management Corporation (Pennsylvania)
In November, the U.S. Department of Justice reached a landmark global settlement
with Education Management Corp., the second largest for-profit educational company
in the country. The $95.5 million settlement resolved allegations that Education
Management Corporation unlawfully paid admissions personnel based on the number
of students they recruited, in violation of the incentive compensation ban included
in the Higher Education Act of 1965, as amended. The settlement also resolved three
other False Claims Act claims filed against the corporation and a consumer fraud
complaint filed by 40 State Attorneys General involving deceptive and misleading
recruiting practices. Education Management Corporation operates nationwide
under the names of The Art Institutes, South University, Argosy University, and
Brown-Mackie College. More than 100,000 students are enrolled at those schools.

Owner of the Lacy School of Cosmetology Ordered to Pay
$9.2 Million (South Carolina)
A Federal court ordered the Lacy School of Cosmetology, a chain of now-closed for-
profit schools in South Carolina, and its owner to pay $9.2 million for failing to comply
with numerous Federal student aid program requirements. The school knowingly
failed to comply with numerous Federal program requirements, made unauthorized
disbursements of Federal student aid funds, failed to refund student credit balances,
and concealed its actions by submitting false statements of compliance.

Former FastTrain Owner Convicted, Other Officials
Sentenced (Florida)
In previous Semiannual Reports, we highlighted our criminal investigation of FastTrain
College, a now-defunct for-profit school that operated seven campuses in Florida.
The massive fraud case involved the school owner and a number of employees who
recruited students to the school who had not earned a valid high school diploma
or its equivalent, obtained fake high school diplomas for them, and falsified their
student aid applications and related information to make it appear that the students
were eligible to attend the school and receive Federal student aid when in fact they
were not. Further, the school used exotic dancers as admissions officers in an effort
to lure young male students to the school. As a result of their fraudulent recruiting
practices, more than 1,300 Free Applications for Federal Student Aid containing
falsified information were submitted to the Department, which yielded some
$6.5 million in Federal student aid that the owner used to fund a lavish lifestyle.
During this reporting period, a Federal jury convicted the school owner on multiple
counts of fraud, while three more school employees were sentenced for their roles
in the scheme. The employees received sentences ranging from 9 to 33 months in
prison, 1 to 3 years of supervised release, and were ordered to pay restitution and
16  Office of Inspector General Semiannual Report




fines ranging from about $460 to more than $145,500. The former owner of the
school will receive his sentence later this year.

Bard College Agrees to Pay $4 Million (California)
Bard College, a nonprofit school based in New York, agreed to pay $4 million to
resolve allegations that it received funds under the Teacher Quality Partnership
Program despite failing to comply with the conditions of the grant and that it
awarded, disbursed, and received Federal student aid funds at campus locations
before such locations were accredited or before notifying the Department, which
violated regulations as well as the school’s Program Participation Agreement. The
settlement stems from a whistleblower complaint filed by two former students
of Bard’s Master of Arts in Teaching Program at Paramount Bard Academy in
Delano, California.

Senior Executives, Employees of Micropower Career
Institute Sentenced (New York)
Three senior executives and two other employees of Micropower Career Institute,
a for-profit school with related locations in New York and New Jersey, were
sentenced for their roles in a widespread student aid and student visa fraud scheme.
The executives 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 have received nearly $20 million in Pell grants and
other Federal student aid since 2008. Two of the executives were sentenced to
serve 1 year and 1 day in prison; the third executive was sentenced to 6 months
of home confinement. The three executives were ordered to pay $1 million in
restitution and $7.4 million in forfeiture. The two employees included the son
of one of the executives, who was sentenced to time served, 6 months of home
confinement, and 2 years of supervised release and was ordered to pay a fine of
$5,000; the other employee was sentenced to time served and 2 years of supervised
release and was ordered to perform 200 hours of community service. Further,
in late March, one of the imprisoned senior executives pled guilty in New York
State Criminal Court to felony possession of a weapon on school grounds. The
firearm was discovered at the school’s Mineola campus during this investigation.

Former Webster University Official Sentenced (Missouri)
The former assistant financial aid director at Webster University was sentenced
on charges of student loan fraud. The former official created false and fraudulent
information to receive student aid from the school on behalf of herself and
her husband. She then used her position to process the student aid forms and
inflated their cost of attendance to increase the amount of Federal student aid
they would receive. As a result of her fraudulent efforts, the former official and
her husband received more than $82,500 to which they were not entitled. The
former official was sentenced to serve 5 years of probation and was ordered to
pay more than $82,500 in restitution.
                            Office of Inspector General Semiannual Report  17




Former Wilson Community College TRIO Director Pled
Guilty (North Carolina)
The former TRIO programs director at Wilson Community College pled guilty to
charges related to theft and fraud. The former director concocted false requisition
forms, vouchers, and contracts; made payments to her boyfriend for financial literacy
workshops and services that he never provided; and submitted reimbursement forms
for work-related travel that she never attended. She also assisted her boyfriend in
stealing eight computers from the school’s TRIO offices; several of the computers
were pawned, and others were found in the home the couple shared.

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.

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.

Criminal Actions Taken Against Members of $2.7 Million
Fraud Ring (Illinois)
Criminal actions have been 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, three more members of the ring were sentenced
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. One of the ring members received a prison sentence of
time served, 2 years of supervised release, and was ordered to pay nearly $589,000
in restitution; the other two members were sentenced to 3 years of probation and
community service and were ordered to pay $24,490 and more than $49,200 in
restitution, respectively.

More Actions Taken Against Members of $680,000 Fraud
Ring (South Carolina)
In our last Semiannual Report, we shared that actions were taken against five
members of a fraud ring that targeted online courses and more than $400,000 in
18  Office of Inspector General Semiannual Report




Federal student aid at the University of Phoenix, Grand Canyon University, and
Capella University. During this reporting period, two members of the ring were
sentenced. From 2006 through 2010, the two ring members provided their personally
identifiable information to the fraud ringleaders and recruited other people to do
the same. The ringleaders used the information to apply for admission and receive
Federal student aid even though they were ineligible to receive aid because they
did not possess high school diplomas or equivalents and did not intend to attend
classes or otherwise use the money for educational purposes. One of the fraud
ring members was sentenced to 3 years of probation and was ordered to pay more
than $4,900 in restitution; the second member was sentenced to time served and
3 years of supervised release and was ordered to pay more than more than $2,500
in restitution.

Three Members of $500,000 Fraud Ring Indicted (Colorado)
Three people were indicted on charges related to student aid fraud. Between 2010
and 2012, the three allegedly used the stolen identities of prison inmates to apply
for admission to and receive Federal student aid from various community colleges
in Colorado. As a result of their alleged efforts, the ring received more than $500,000
in Federal student aid to which they were not entitled.

Leader of $461,600 Fraud Ring Sentenced (California)
The leader of a fraud ring that targeted online classes and Federal student aid
at Rio Salado College was sentenced to 6 months in prison followed by 3 years
of supervised release and was ordered to pay more than $461,600 in restitution.
The leader used the identities of people, with and without their consent, to act
as straw students—none of them had any intention of attending classes. She
completed admissions forms and student aid applications for them that included
false information on the number of claimed dependents to increase the potential
financial aid award. The ring leader also took online classes for the straw students
until the student aid refund checks were disbursed.

Leader of $350,000 Fraud Ring Sentenced (California)
A woman who orchestrated a fraud ring that targeted online courses at the University
of Phoenix and Capella University was sentenced to serve 4 years and 8 months
in prison and 36 months of supervised release and was ordered to pay about
$350,000 in restitution. The woman submitted fraudulent admissions and student
aid application forms to the schools on behalf of students who did not intend to
attend either school. She also used stolen identities to apply for college financial
aid in the names of people who did not know their information was being used in
the scheme. All ring members have now been sentenced for their roles in this scam.

Couple Sentenced to Prison for Orchestrating $260,000
Fraud Ring (Colorado)
A couple who lived together were sentenced to prison for orchestrating a fraud ring
that targeted online classes and student aid at five Colorado community colleges.
The couple used the names and identities of 39 people—both with and without
their permission—that they used to apply for admissions to the schools for the
sole purpose of receiving Federal student aid. They completed and submitted all
                           Office of Inspector General Semiannual Report  19




admissions forms and student aid applications, all of which included fraudulent
information that enabled them to receive more than $260,000 in Federal student aid.
The woman was sentenced to serve 54 months in prison and 3 years of supervised
release and was ordered to pay more than $183,800 in restitution; the man was
sentenced to serve 45 months in prison and 3 years of supervised release and was
ordered to pay more than $183,800 in restitution.

Leader of $134,000 Fraud Ring Sentenced (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 was sentenced to
prison. The woman 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 her fraudulent efforts, the ring obtained more than $130,000.
The woman was sentenced to serve 12 months and 1 day in prison and 2 years of
supervised release and was ordered to pay more than $134,000 in restitution.

Leader of $126,700 Fraud Ring Sentenced (Michigan)
A man with a criminal record going to back to 1994 was sentenced to serve 40 months
in prison and 24 months of supervised release and was ordered to pay more than
$145,900 in restitution for fraud. The man enrolled people for classes at various
colleges and submitted applications for student aid on their behalf, knowing that
the people had no intention of attending classes or were otherwise ineligible to
receive student aid. As a result of his fraudulent actions, the ring obtained more
than $126,700 in Federal student aid. He also used the identities of others to open
new lines of credit, which he used to make more than $19,000 in merchandise and
cash advances.

Repeat Student Aid Fraud Offender Pled Guilty (Florida)
A man who was sentenced to prison for student aid fraud in 2004 pled guilty
in January to charges related to student aid fraud. The man and an accomplice
used the identities of numerous people, some without 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 2004 case, he 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.

Wife of Imprisoned Fraudster Pled Guilty (California)
In 2014, a man was sentenced to prison and was ordered to pay more than $66,700
in restitution for orchestrating a student aid fraud scheme that targeted Federal
student aid at various community colleges. During this reporting period, his wife
pled guilty for her role in the scheme. From 2009 through 2011, the couple recruited
people to act as straw students, completed school admissions and student aid
forms on their behalf, and received a portion of the student aid once received. In
her plea agreement, the woman agreed to pay more than $66,700 in restitution.
20  Office of Inspector General Semiannual Report




Actions Taken Against Three-Person Fraud Ring (Virginia)
Criminal actions were taken against three women for their roles in a student aid and
insurance company fraud scheme. Between 2011 and 2014, the women submitted
fraudulent admissions and student aid applications to schools, including Liberty
University, to obtain Federal student aid funds for online classes they never intended
to take. Two of the women were also involved in a scheme to defraud insurance
companies by submitting insurance claims for fictitious car accidents. The ringleader
was sentenced to serve 7 years in prison and 3 years of supervised release and was
ordered to pay a $400 assessment; another woman was sentenced to 3 months of
home confinement and 3 years of probation and was ordered to pay more than
$12,000 in restitution; the final participant pled guilty and awaits sentencing.


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. Although some of these cases involve
criminals who used the identities of others (with and without consent) to exploit
distance education programs in order to obtain Federal student aid, they are not
fraud rings because they do not involve multiple fraud perpetrators.

More Actions Taken in Terrorism Investigation (Minnesota)
In our last Semiannual Report, we noted that 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 Federal student aid funds to do so. During
this reporting period, one of those men pled guilty to that charge. The man made a
series of cash withdrawals from his Federal student aid account totaling $2,400. He
deposited those funds into a personal account that he used to purchase a round-
trip airline ticket to Greece with the intention of traveling to Syria to fight for ISIS.
Another member of the group was also indicted for attempting to use $5,000 in
Federal student aid funds to travel to Turkey and eventually to Syria to join and
fight with ISIS.

Graduate Student Pled Guilty in Million Dollar Student Loan
Scheme(New York)
A New York University graduate student pled guilty and agreed to pay more than
$1.7 million in restitution for fraud. From 2008 through 2013, the student submitted
fraudulent letters and bills from doctors and others falsely claiming that he required
special assistance to attend school in order to obtain Federal student loan funds. As
a result of his fraudulent efforts, the student obtained more than a million dollars
in Federal student aid and loans to which he was not entitled.

Man Sentenced in $236,000 Student Aid Fraud Scheme
(Michigan)
A man was sentenced to prison for using the identities of others to target online
classes and Federal student aid at Baker College, the University of Phoenix, Colorado
                          Office of Inspector General Semiannual Report  21




Technical College, and Centura College. As a result of his fraudulent efforts, the man
obtained more than $236,000 in Federal student aid. The man was sentenced to
serve 30 months in prison and 1 year of supervised release and was ordered to pay
more than $236,200 in restitution.

Woman Pled Guilty in $240,000 Student Aid Fraud Scheme
(Pennsylvania)
A woman pled guilty to charges related to student aid fraud. From August 2005
through November 2007, the woman submitted fraudulent student loan documents
purportedly for her son to go to college. She received more than $240,000 that she
used for her own purposes.

Man Who Stole Identity of Military Veteran Pled Guilty to
Fraud (Missouri)
A man pled guilty to student aid fraud. The man used the stolen identity of a
military veteran to apply for and receive Federal grants and benefits, including
nearly $15,000 in student aid. From 2012 through 2014, the man used the stolen
identity a U.S. Navy veteran to apply for and receive Federal Pell grant funds and
student loans, as well as health care benefits and retraining assistance from the
U.S. Department of Veterans Affairs.

Woman Pled Guilty to Using Multiple Social Security
Numbers to Obtain $100,000 in Student Aid (Texas)
A woman who obtained three Social Security numbers in her own name used those
identification numbers as well as the identity of her mother and her ex-boyfriend
to apply for and receive nearly $100,000 in Federal student aid. From 2006 through
2014, the woman applied for multiple sources of financial aid at multiple schools,
funds that she did not use for educational purposes.

Man Sentenced for Role in Fraud Scam at Lone Star
College (Texas)
In a previous Semiannual Report, we noted that a former Lone Star College employee
was sentenced for orchestrating a student aid fraud scam at the school. The former
employee accessed the school’s computer system, obtained student personally
identifiable information and student loan data, and used that information to
divert the student financial aid refund checks to bank accounts under her and her
conspirators’ control. As a result of their criminal actions, more than $100,000 in
Federal student aid was stolen from unwitting Lone Star College students. During
this reporting period, another participant was sentenced for his role in the scam.
The man received a sentence of 2 years of community supervision and was ordered
to pay more than $4,600 in restitution.

Four People Indicted for Roles in Series of Fraud Schemes
(Kansas)
An online business owner and three other people were indicted for their roles in fraud
schemes involving more than $1 million in false tax refunds, false unemployment
22  Office of Inspector General Semiannual Report




benefits, mortgage fraud, food stamp fraud, and student aid fraud. For the student
aid fraud portion of the schemes, the indictment alleges that from 1991 through
2007, the woman received about $132,200 under one name and Social Security
number and defaulted on those loans. In 2009, she legally changed her name and
Social Security number, which she used to apply for and receive about $74,500 in
student aid through 2014, failing to disclose that she had previously defaulted on
student loans.

Woman Who Used Sister’s Identity Ordered to Pay $66,000
(Oklahoma)
A woman applied for and received more than $66,000 in student aid using her
sister’s identity after exhausting her available Federal student financial aid benefits.
She was ordered to pay more than $66,000 for fraud.

Store Owner Pled Guilty to Theft of Government Funds
(Michigan)
The owner of Detroit Fish Express pled guilty to theft of government funds. The
store owner and his spouse completed and submitted applications for Federal
program funds that underreported or omitted the ownership of his business and
his true income. As a result, the man received more than $204,000 in Federal funds
to which he was not entitled, including more than $57,100 in Federal student aid.

Brother and Sister, Other Family Members Convicted in
$300,000 Fraud Scam (Nevada)
A brother and sister were convicted on multiple felony counts for using false identities
to steal almost $300,000 in Federal funds, including Federal student aid. The two
falsely claimed to be U.S. citizens when in fact they were from Belize, and they used
false identities to apply for and receive the aid. Two other family members were also
convicted of fraud for their part in the scheme to unlawfully obtain unemployment
compensation funds.

Department of Defense Interpreter, Husband Sentenced for
Benefits Fraud (Arizona)
A former Department of Defense interpreter and her husband were each sentenced
to 2 years of probation and were ordered to pay restitution of $50,700 and $57,300,
respectively, for fraud. The woman and her husband made false claims regarding
their income to State and Federal Government agencies for the sole purpose
of gaining financial benefits to which they were not entitled, including Federal
student aid. As a result of their fraudulent efforts, their son received a Pell grant
and a Supplemental Educational Opportunity Grant he otherwise would not have
been eligible to receive.
                                                     Office of Inspector General Semiannual Report  23




                          Congressional Testimony
                          In November, Inspector General Tighe testified before the U.S. House of Representatives
                          Committee on Oversight and Government Reform. The topic of the hearing was FSA
                          as a performance-based organization. The Inspector General focused her remarks
                          on the OIG’s work involving FSA’s effectiveness in managing both the oversight
                          and administrative functions that support FSA programs and operations—critical
                          aspects of the performance-based organization. Inspector General Tighe noted that
                          OIG work has shown that FSA has the means to conduct effective oversight and
                          management through statute, regulations, policies, and procedures; however, FSA
                          needs to improve the execution of its duties to ensure that all participants in the
                          Federal student aid programs are serving the interests of students and taxpayers.
                          Inspector General Tighe provided examples of our recent work that showed the
                          need for improvements, including our audits of FSA’s program review process,
                          audit resolution, improper payments, oversight of school third party servicers, and
                          contractor management. This work shows that FSA needs to better oversee and
                          manage Federal student aid programs to ensure they are serving the interests of
                          students and to prevent waste, fraud, and abuse.




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, including issues related to negotiated
        rulemaking for student loan regulations and for teacher preparation regulations.

Review of Legislation, Regulations, Directives, and Memoranda
   •	   Department draft policy and memorandum, Increasing Coordination with, and Clarifying
        Flexibility for Accreditors. The OIG made technical and clarifying suggestions.

   •	   Department draft Dear Colleague Letter, Use of Professional Judgment when Prior-Prior Year
        Income is Used to Complete the Free Application for Federal Student Aid (FAFSA). The OIG
        offered clarifying suggestions.

   •	   Department draft Dear Colleague Letter, Federal Perkins Loan Program Extension Act of 2015.
        The OIG provided comments to improve the quality and integrity of the document.

   •	   Department draft guidance, Supplementary Cash Management Guidance Materials for Publication
        and Distribution through Information for Financial Aid Professionals. The OIG provided comments
        to improve the quality and integrity of the document.

   •	   Department draft letter, Providing Guidance/Clarification to Accrediting Agencies Regarding
        Flexibility in Application Processes. The OIG provided a comment to correct inaccurate language
        in the document.
Department’s programs and
operations.
                           Goal 3
Protect the integrity of the
                                              Office of Inspector General Semiannual Report  27




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
                    In support of this goal, the OIG issued two audits. The first audit examined the
                    adequacy of the California Department of Education’s (California) and three LEAs’
                    monitoring of School Improvement Grants (SIG) contractors. The SIG program
                    authorizes formula grants to States that then competitively award grants to LEAs
                    to help them meet their school improvement responsibilities. LEAs can outsource
                    certain SIG activities and services, such as family and community engagement,
                    after-school programs, and professional development. The second audit is the final
                    report in our series of work involving the Race to the Top Program–a multibillion
                    dollar discretionary grant program authorized under the American Recovery and
                    Reinvestment Act (Recovery Act) created to spur innovation, reforms, and outcomes in
                    elementary and secondary education program. The audit focused on the Tennessee
                    Department of Education’s administration of selected aspects of its $500 million
                    Race to the Top grant. This was the third in our series of State-specific Race to the
                    Top reports: we issued the first report, on the Ohio Department of Education, in
                    2014 and the second on the North Carolina Department of Public Instruction, in
                    2015. A summary of the two audits issued during this reporting period follows.

                    State and District Monitoring of School Improvement
                    Grants Contractors in California
                    The audit evaluated the adequacy of California’s monitoring of three LEA activities
                    in three key areas, whether the LEAs adequately monitored SIG contractors’
                    performance, and whether the LEAs had appropriate fiscal controls to ensure that
                    payments to SIG contractors for professional services met Federal requirements. We
                    found that California and the three LEAs did not adequately monitor SIG contractors.
                    Specifically, we found the following.
28  Office of Inspector General Semiannual Report




    •	   California did not adequately monitor the three LEAs to ensure that they
         had written policies and procedures for reviewing and approving certain
         key financial documents that resulted in the obligation and expenditure
         of Federal funds to SIG contractors.

    •	   The three LEAs did not adequately monitor fiscal transactions with SIG
         contractors to ensure that payments to these contractors conformed to
         Federal requirements. Two of the LEAs did not have written policies and
         procedures for reviewing and approving purchase order requisitions that
         committed Federal funds for SIG contractor-provided services. None of
         the LEAs had written policies and procedures for reviewing and approving
         invoices submitted by SIG contractors before payment using Federal funds.
         In addition, designated officials from the three LEAs did not always review
         and approve purchase order requisitions and invoices. One LEA did not
         maintain adequate documentation to support invoiced services for five of
         the six SIG contractor expenditures we judgmentally selected for testing,
         totaling more than $121,300. Two of the LEAs also allowed SIG contractors
         to provide services before the LEAs had approved contracts or purchase
         orders for the services.

    •	   Officials at one LEA described specific activities that its personnel performed
         to monitor SIG contractors’ performance but did not provide documentation
         to support that the LEA had in fact monitored six of seven SIG contractors
         we judgmentally selected for testing.

In addition, we also found that one LEA approved two SIG contracts that included
unallowable activities, and another LEA did not appear to routinely pay SIG
contractors timely.

Based on our findings, we made a number of recommendations, including that
the Department ensure that California enhance its LEA monitoring instrument for
SIG program accountability and require LEAs to develop and implement written
policies and procedures related to reviewing and approving key financial documents
involving SIG contractor transactions. We also recommended that the Department
ensure that California requires LEAs to periodically test these control activities to
ensure proper implementation. California did not explicitly agree with our findings
but agreed with all of our recommendations.

The Tennessee Department of Education’s Administration
of its Race to the Top Grant
The audit found that, for the specific areas reviewed, the Tennessee Department of
Education (Tennessee) generally administered its Race to the Top grant in accordance
with program requirements and its approved grant application. We did, however,
determine that Tennessee did not ensure that one of the two LEAs included in our
review developed and implemented fiscal control and fund accounting procedures
that provided reasonable assurance that the LEA accounted for and spent Race to
the Top funds in accordance with Federal requirements and the approved grant
application. Specifically, we found that the LEA (1) did not always retain expenditure
                           Office of Inspector General Semiannual Report  29




documentation records, (2) did not establish a process for determining whether it
awarded professional services contracts in accordance with regulations, (3) did not
always obtain approvals before making purchases, (4) inadequately designed and
implemented control activities over employee use of school district credit cards,
(5) had inadequate procedures for accurately recording adjusting journal entries,
and (6) improperly classified expenditures. By not designing and implementing
effective fiscal control and fund accounting procedures, the LEA increased the
risk that it would misuse Federal funds or not accomplish the goals set forth in the
approved Race to the Top grant application.

In addition, we found that Tennessee and the LEA did not spend Race to the Top funds
only on allowable items and activities and in accordance with program requirements
and the approved grant application. Specifically, we found that Tennessee and the
LEA spent more than $101,900 on unallowable items and activities and did not retain
documentation to show that more than $141,900 in expenditures were allowable.

We made 11 recommendations to address the weaknesses identified, 8 of which
were specific to improving internal control activities at the LEA. This included
a recommendation that Tennessee instruct the LEA to develop and implement
policies and procedures that provide reasonable assurance that it will retain
adequate supporting documentation for all transactions. We also recommended
that the Department require Tennessee to provide accounting records proving that
the expenditures charged to the Race to the Top grant were allowable. Tennessee
agreed with our findings and generally agreed with the recommendations.

Investigations of 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 Brick Township Public Schools Superintendent and
Three Employees Indicted (New Jersey)
The former superintendent for Brick Township Public Schools, his daughter, the
former interim director of public services for the school district, and his wife (a former
Brick Township Public Schools employee) were indicted on charges of misconduct
and theft by deception. The four allegedly used their positions to provide the
superintendent’s grandson with extravagant daycare services—totaling more than
$50,000—at the school district’s expense by falsely claiming that the child was in
need of special services. Further, the former director of public services was also
charged with intentionally failing to disclose his 1990 criminal conviction (selling a
controlled substance) on his Brick Township employment application.
30  Office of Inspector General Semiannual Report




Former Beaumont Independent School District Assistant
Superintendent and Teacher Pled Guilty in Fraud Schemes
(Texas)
During this reporting period, a former Beaumont Independent School District
assistant superintendent pled guilty to theft and conspiracy, and a former Beaumont
Independent School District teacher pled guilty to conspiracy. The former assistant
superintendent admitted to embezzling money from the school district, including
stealing money from a high school booster club and steering contracts to family
members totaling $480,000 for services that were never provided. This included
contracts to her son for printing services, which her son contracted out and then
billed the district at an exorbitant price. The former teacher pled guilty to conspiring
with the former assistant superintendent to increase standardized test scores by
providing teachers with test answer keys and by changing answers on student test
booklets.

Former High School Principal Charged
(Puerto Rico)                                                               	       The son of a
The former principal of Manuel Mediavilla-Negron
Vocational Technological Public High School was charged
                                                                            U.S. Congressman was
for allegedly embezzling more than $67,000 in school
funds. The former principal allegedly cashed checks
                                                                            sentenced to 60 months
written to him from the school bank account to pay                          in prison and 5 years
for various personal bills, his fitness club membership,
and online shopping.                                                        of supervised release
City of Baker Maintenance Supervisor                                        and was ordered to pay
Sentenced (Louisiana)                                                       more than $1.1 million
A former maintenance and operations supervisor for the
City of Baker School District was sentenced to 2 years of                   in restitution for fraud.
probation and was ordered to pay more than $9,400 in
restitution and fines for theft. The former official used
his position and authority to purchase items with school
district funds for his personal use.

Son of U.S. Congressman Sentenced for
Fraud (Pennsylvania)
The owner/founder of an educational consulting company in Pennsylvania, who is
also the son of a U.S. Congressman, was sentenced to 60 months in prison and 5 years
of supervised release and was ordered to pay more than $1.1 million in restitution for
fraud. The owner/founder fraudulently obtained hundreds of thousands of dollars
from the Philadelphia School District by submitting false expense information and
inflated invoices to the district for services the company provided to at-risk students.
                           Office of Inspector General Semiannual Report  31




Another Executive of Sports Equipment Company
Sentenced for Defrauding Schools Nationwide (New Jersey)
In our last Semiannual Report, we noted that 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. During this reporting period, the former president of the company was
sentenced to probation for his role in the scam. 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
president is the last of five people who were charged for participating in the scam.


Investigations of Supplemental
Educational Services Providers
OIG audit work conducted over the last decade found a lack of oversight and
monitoring of Supplemental Educational Services (SES) providers by State educational
agencies, which may leave programs vulnerable to fraud, waste, and abuse. Recent
OIG investigative work has proven this point, uncovering cases involving fraud and
corruption perpetrated by SES providers and school district officials.

More Actions Taken in Rocket Learning Fraud Scam
(Puerto Rico)
Fifty-one people were indicted for their alleged roles in an SES fraud scheme
involving the tutoring company Rocket Learning. A Federal grand jury returned a
74-count indictment charging Rocket Learning 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.

Sisters Sentenced in Princeton Review Fraud Scam
(New York)
In previous Semiannual Reports, we have highlighted our investigation involving
an SES fraud scam perpetrated by the Princeton Review (now Education Holdings,
Inc.). In 2010, Education Holdings agreed to pay $10 million to settle claims that
between 2006 and 2010, company supervisors and staff routinely falsified entries
and student attendance forms to make it appear as though the company was
providing tutoring services to students in New York City Public Schools when in
fact no tutoring had been provided. During this reporting period, two sisters who
32  Office of Inspector General Semiannual Report



worked for the Princeton Review were sentenced for their roles in the scam. One
woman was sentenced to 3 years of probation and was ordered to pay more than
$1 million in restitution; her sister was sentenced to 3 years of supervised release
and was ordered to pay more than $1 million in restitution.
                                                     Office of Inspector General Semiannual Report  33




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

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

    •   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.

            •   Association of Government Accountants Intergovernmental Partnership. OIG staff led
                the Cooperative Audit Resolution and Oversight Initiative 2 Workgroup that produced a
                playbook for improving programs and reducing improper payments through effective use of
                the Cooperative Audit Resolution and Oversight, or CAROI process.

Review of Legislation, Regulations, Directives, and Memoranda
    •   Department Directive, Guide for Managing Formula Grant Programs. The OIG made technical
        comments.

    •   Revised Dear Colleague Letter to SEAs to Remind Them (Current and Prospective Charter Schools
        Program Grantees) of Responsibilities Related to Fiscal Monitoring of Federal Funds. The OIG
        suggested that the Department highlight effective internal controls to help ensure compliance and
        mitigate risks (now an administrative requirement for all recipients of Federal funds), as well as other
        comments to improve the quality and integrity of the document.
                                  Goal 4
Contribute to improvements in
Department business operations.
                                              Office of Inspector General Semiannual Report  37




E     ffective and efficient business operations are critical to ensure that 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 laws, policies, and regulations and the effective, efficient, and fair
use of taxpayer dollars with which it has been entrusted.




                    Audits and Reviews
                    OIG work completed over the last 6 months that contributed to this goal includes
                    our statutory audits involving the Department’s information technology security
                    and financial management, compliance-focused reviews of government purchase
                    cards and the Small Business Innovation Research program. We also issued a number
                    of other reports, including an audit of the resolution of discrimination complaints
                    by the Department’s Office for Civil Rights, an audit of the external audit followup
                    process by the Department’s Office of Elementary and Secondary Education, and
                    a review of actions the Department has taken to ensure the accuracy and reliability
                    of K–12 data reported in its Annual Performance Report. More information and
                    summaries of these reports follow.

                    Information Technology Security
                    The E-Government Act of 2002 recognized the importance of information security
                    to the economic and national security interests of the United States. Title III of the
                    E-Government Act, the Federal Information Security Management Act of 2002
                    (FISMA), as amended by the Federal Information Security Modernization Act of 2014,
                    requires each Federal agency to develop, document, and implement an agency-
                    wide program to provide security for the information and information systems
                    that support the operations and assets of the agency, including those provided or
                    managed by another agency, contractor, or other source. It also requires inspectors
                    general to perform independent evaluations of the effectiveness of information
                    security control techniques and to provide assessments of agency compliance with
                    FISMA. A summary of our FY 2015 FISMA audit follows.
38  Office of Inspector General Semiannual Report




FY 2015 FISMA Review
We found that the Department and FSA made progress in strengthening its information
security programs; however, weaknesses remained and the Department-wide
information systems continued to be vulnerable to security threats. Specifically, we
found that the Department was not generally effective in 4 of the 10 security areas
reviewed—continuous monitoring, configuration management, incident response
and reporting, and remote access management. Although we determined that the
Department’s and FSA’s information technology security programs were generally
effective in key aspects of three metric areas—risk management, security training,
and contingency planning—we also noted that improvements were still needed in
these areas. For the Department and FSA’s plan of action and milestones process, we
determined that if implemented as intended, it should be effective.
We also determined that the Department’s identity and access
management programs and practices would be generally effective
if implemented properly but that the Department’s controls over
access to FSA’s mainframe environment need improvement. In
particular, we identified several weaknesses that the Department
should focus on. For example, our vulnerability and penetration
testing revealed a key weakness in the Department’s ability to
detect unauthorized activity inside its computer network. We
also noted a significant issue related to third-party access to a
contractor-operated critical business system, specifically the
Department’s and FSA’s ability to adequately oversee its contractors
and ensure that only people with appropriate permission have
access to the Department’s data. Based on our findings, we made
26 recommendations, 16 of which were new and 10 of which
were in response to repeat findings. All of these recommendations were aimed at
helping the Department and FSA increase the effectiveness of their information
security program so that it fully complies with all applicable requirements of FISMA,
the Office of Management and Budget, and the National Institute of Standards and
Technology. The Department and FSA agreed with most of our recommendations.

Financial Management
One of the purposes of the Chief Financial Officers Act of 1990 is to improve agency
systems of accounting, financial management, and internal controls to ensure the
reporting of reliable financial information and to deter fraud, waste, and abuse
of Government resources. The Act requires an annual audit of agency financial
statements, which is intended to help improve an agency’s financial management
and controls over financial reporting. A summary of our FY 2015 financial statement
audits follow.

Financial Statements Audits
For FY 2015, both the Department and FSA financial statements were fairly presented,
in all material respects, in accordance with generally accepted accounting principles;
however, like FY 2014, the financial statement auditors identified one significant
deficiency in internal control over financial reporting and one instance of reportable
noncompliance. The significant deficiency involved information technology controls
over security management, personnel security, access controls, and configuration
management, which can increase the risk of unauthorized access to the Department’s
                          Office of Inspector General Semiannual Report  39




systems used to capture, process, and report financial transactions and balances,
affecting the reliability and security of the data and information. The instance of
noncompliance involved a provision of the Debt Collection Improvement Act of
1996, as amended by the Digital Accountability and Transparency Act of 2014 which
requires Federal agencies to notify the Secretary of the Treasury of debts that are
more than 120 days delinquent. The auditors found that neither the Department
nor FSA had processes in place to comply with the 120-day notification requirement.
Based on the findings, the auditors recommended that the Department and FSA
take action to address the information technology control deficiencies and to review
their loan servicing procedures and internal processes to comply with statutory
requirements. The Department agreed with the findings and recommendations
in the report.

Closing Package Financial Statements
The auditors found that the Department’s FY 2015 Closing Package Financial
Statements were fairly presented, in all material respects, in accordance with
generally accepted accounting principles. The auditors did not identify material
weaknesses in internal controls over financial reporting, nor instances of reportable
noncompliance specific to the closing package financial statement audit.

Compliance Audits
During this reporting period, we issued two compliance-focused audits: our statutory
review involving government purchase cards and an audit of the Department’s
compliance with regulations and operating procedures for the Small Business
Innovation Research Program.

Purchase Card Risk Assessment
The Government Charge Card Abuse Prevention Act of 2012 requires inspectors
general to conduct periodic risk assessments of their agency’s purchase card program
to identify and analyze the risks of illegal, improper, and erroneous purchases and
payments. Inspectors General must then use the results of those risk assessments
to determine the scope, frequency, and number of periodic audits of purchase card
transactions to perform in the future. Our review determined that the purchase
card program does not pose a high risk to the Department and an audit of the
program was not necessary. We reviewed the Department’s purchase card policies
and procedures, Office of Management and Budget guidance, corrective action the
Department has taken in response to previous OIG purchase card audit findings,
documentation from the Department’s purchase card monitoring efforts, and data on
disciplinary actions the Department has taken in response to purchase card misuse.
Additionally, we used OIG data analytic resources to identify and assess high-risk
categories of potentially inappropriate purchases. Although we found that the
program does not pose a high risk to the Department, we made one suggestion to
assist the Department in strengthening its purchase card program: that it improve
coordination between Department units when reporting disciplinary actions taken
against purchase card abusers to the Office of Management and Budget.
40  Office of Inspector General Semiannual Report




Small Business Innovation Research Program Regulations and
Operating Procedures
The Small Business Innovation Research (SBIR) program provides funds to small
businesses to stimulate technological innovation to meet Federal research and
development needs. In 2012, Congress passed legislation reauthorizing the program,
and the Small Business Administration incorporated changes made in the legislation
into a SBIR Program Policy Directive. The directive outlined how agencies must
conduct these programs, which included policies and procedures to prevent fraud,
waste, and abuse. Agencies were directed to consult with their OIG when creating
these policies and procedures to capitalize on the OIG’s expertise in the area.

We found that the Department needs to improve its implementation of the minimum
requirements related to identifying and preventing fraud, waste, and abuse in
the SBIR program. Although the Department is not required to establish its own
overall operating procedures and regulations for the SBIR program, it is required
to implement the minimum requirements related to fraud, waste, and abuse
established in the SBIR Program Policy Directive. We found that the Department
did not adequately implement 7 of the 10 minimum requirements. Specifically, the
Department had not developed required policies or established formal processes
related to the identification and prevention of fraud, waste, and abuse; had not
created or ensured that there is an adequate system to enforce accountability
through suspension and debarment, fraud referrals, or other efforts to deter
wrongdoing and promote integrity; and had not designated an individual to serve
as the liaison for the Department’s SBIR program, the OIG, and the Suspension
and Debarment Official, as required. We also determined that the Department
could more proactively work with the OIG to establish fraud detection indicators,
coordinate the sharing of information between Federal agencies, and improve its
training and education for grant applicants. Lastly, we found that the Department
did not implement three of the four minimum requirements related to ensuring
SBIR awardee eligibility and compliance.

The SBIR Program Policy Directive states that agencies should evaluate risks of fraud,
waste, and abuse in each grant application; monitor and administer SBIR awards;
and create and implement policies and procedures to prevent fraud, waste, and
abuse in the SBIR program. By not implementing the minimum requirements, the
Department increases its risk of not identifying potential fraud, waste, and abuse in
the SBIR program. Additionally, not documenting applicable policy and processes can
create confusion and inhibit training of new staff assigned to work on the program
in the event that current staff are no longer available. We recommended that the
Institute of Educational Sciences, the only office within the Department with an SBIR
program, ensure that the Department implements all of the SBIR Program Policy
Directive’s minimum requirements. The Institute of Educational Sciences agreed
that the SBIR program would benefit from formal, written policies and procedures
and described actions it would take to ensure that the Department adequately
implemented all of the minimum requirements.
                                      Office of Inspector General Semiannual Report  41




           Department Management and Operations
           We also issued a number of other reports involving Department management and
           operations. Summaries of these reports follow.

           Resolution of Discrimination Complaints by the Office for Civil Rights
           We conducted an audit to determine whether the Department’s Office for Civil
           Rights (OCR) resolves discrimination complaints in a timely and efficient manner
           and in accordance with applicable policies and procedures. We found that OCR
           generally does so. Specifically, we determined that OCR timely resolved discrimination
           complaints at a high overall rate and did not have a large backlog of unresolved
           cases. The primary factors that contributed to OCR’s timely and efficient resolution
           of complaints included efficient case resolution methods, consistency in case
           investigation practices, and effective case tracking and information management
           systems. OCR was able to respond to complainants quickly and provided prompt
           relief to complainants who needed it. We did, however, note that increasing workload
           and decreasing resources could have a negative effect on complaint resolution
           over time. Staff may not be able to maintain current levels of productivity if these
                                                trends continue. We also determined that OCR
                                                generally resolved discrimination complaints in
                                                accordance with its Case Processing Manual and
                                                other established policy. We determined that
                                                OCR had generally developed clearly defined
                                                procedures that allowed regional staff to follow
OCR was able to respond to                      established policy when resolving the different
                                                types of discrimination complaints and allowed
complainants quickly and                        management to provide clear direction to regional
                                                staff when complications or questions arose. We
provided prompt relief to                       also noted that OCR management created a control
                                                environment that ensured the investigative teams
complainants who needed it.                     understood the importance of compliance with
                                                policies and procedures. As a result, OCR was able
                                                to ensure that complaints were processed and
                                                resolved consistently, efficiently, and effectively
           across the regions, in line with OCR’s statutory and regulatory responsibilities. We did,
           however, determine that 2 of the 12 regional offices did not appropriately maintain
           separate files for the Early Complaint Resolution process, and in some instances
           destroyed or discarded documentation obtained during that process. Failure to
           separate records from investigative case files may compromise the confidentiality
           of the Early Complaint Resolution process and may affect the impartiality and
           objectivity of the staff investigating the complaint if the Early Complaint Resolution
           is not successful. Additionally, failure to retain Early Complaint Resolution records
           can provide the appearance that OCR is not competently managing the information
           it receives when resolving discrimination complaints. Nevertheless, after learning
           of these practices, headquarters officials took immediate action to correct the issue
           and OCR described the specific actions it had taken to resolve the issue before the
           conclusion of our review.

           We recommended that OCR management continue the practice of sharing and
           discussing with the regions the list of cases pending review with headquarters staff
42  Office of Inspector General Semiannual Report




to ensure that they are tracked and processed efficiently and that it ensure that
regions are made aware of and understand all policy involving the maintenance
of files and records for the Early Complaint Resolution process. The Department
agreed with our recommendations.

Followup Process for External Audits in the Office of Elementary and
Secondary Education
In our last Semiannual Report, we summarized the first three 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. 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. During this
reporting period, we issued another report in this series, focusing on the Department’s
Office of Elementary and Secondary Education (OESE). The audit found that OESE
needed to improve its audit followup process. Specifically, we found that OESE did
not close audits timely and did not adequately maintain documentation of audit
followup activities. From October 1, 2008, through September 30, 2013, OESE closed
86 external OIG audits. Of the 86 closed audits, 59 (69 percent) were closed more
than 2 years after resolution and 34 (40 percent) were closed more than 5 years
after resolution. The total of the monetary recommendations associated with the
86 audits was more than $587 million. Further, we found that OESE did not always
adequately maintain documentation of audit followup activities. This included not
maintaining supporting documentation of corrective actions in the official audit
file and not maintaining documentation that supported that auditees actually took
requested corrective actions before audit closure. We reviewed audit followup
activities for a nonstatistical sample of 14 external OIG audits of OESE programs.
For these 14 audits, OESE determined that 81 recommendations required corrective
actions, including more than $10.2 million in monetary corrective actions. We found
that OESE staff did not adequately maintain documentation for 68 (84 percent) out
of 81 recommendations, including monetary corrective actions totaling more than
$7.9 million. By not obtaining or maintaining appropriate documentation to show
that auditees completed requested corrective actions, OESE did not have assurance
that auditees corrected identified deficiencies. As such, the risk remains that auditees
are not effectively managing related programs and using funds as intended. We
made several recommendations, including that the Department ensure that staff
obtain and maintain adequate documentation to support that auditees complete
corrective actions and audit followup activities and that it ensure that staff are
following up with auditees until they have taken all appropriate corrective actions.
The Department agreed with our recommendations.

Management Certification of Data Reliability
The audit examined the actions the Department had taken, including the use of
management certifications, to ensure the accuracy and reliability of K–12 data
reported in its Annual Performance Report and select OESE K–12 data. We found
that although the Department took actions to ensure the completeness and
reasonableness of the data it reported, it needs to improve controls to support the
accuracy of data that SEAs reported. Specifically, we determined that the Department
could provide better oversight, including both technical assistance and monitoring,
                          Office of Inspector General Semiannual Report  43




of SEAs’ controls over data quality and the verification and validation process for
data it reports in its Annual Performance Report. It could also involve external
auditors in the process by updating the Office of Management and Budget (OMB)
Circular A-133 Compliance Supplement under which they conduct their audits.
Such actions could result in improvements to the quality of data that SEAs submit.
Based on our findings, we made a number of recommendations, including that the
Department review how management certifications and monitoring protocols are
used across all Department programs and ensure that certification language and
protocol steps to assess how well SEA or LEA procedures are working to provide
accurate data. We also recommended that the Department revise the compliance
supplement to address areas where external auditors should determine whether
SEAs have controls to ensure that data collected from LEAs and other State agencies
are accurate and reliable and support the management certifications they sign.
Although the Department did not agree with the OIG’s overall evaluation of the
value and effectiveness of its current procedures, it agreed that it should continue
to make improvements to its procedures to enhance data accuracy and reliability
and proposed corrective actions for each of our recommendations.


Investigations
The following are summaries of two OIG criminal investigations related to our
fourth goal. The first involves a former Department employee and the second, a
$1.3 million settlement with a Department contractor.

Former FSA Employee Sentenced
A former FSA lender review specialist was sentenced on charges related to student
aid fraud. The former employee included false information on her children’s student
aid applications and submitted them to schools and the Department in order to
increase their Federal student aid awards. The employee, who resigned from her
position with FSA in October 2015, was sentenced to 1 year of probation and was
ordered to pay more than $23,100 in restitution.

Enterprise Recovery Systems, Inc., Agrees to $1.3 Million
Settlement
Enterprise Recovery Systems, Inc., a for-profit debt collection agency under contract
with the Department, agreed to pay more than $1.3 million to settle allegations
that its loan processors designated some student loan accounts as having a signed
rehabilitation agreement when, in fact, it had not obtained those agreements. Those
designations resulted in Enterprise Recovery Systems, Inc., making false claims for
payment from the Department under the contract.
44  Office of Inspector General Semiannual Report




Congressional Hearings
Information Technology Security
In November, Inspector General Tighe testified before the U.S. House of Representatives
Committee on Oversight and Government Reform on the work of the OIG involving
information technology security at the Department. The Inspector General shared
the results of recent OIG reviews and investigations involving information technology
security, highlighting concerns with persistent control deficiencies identified in the
Department’s and FSA’s financial statement audits and repeat findings identified
through our FISMA work. Inspector General Tighe stated that failure to correct
deficiencies and adequately address repeat findings can increase the risk of
unauthorized access to the Department’s systems and could affect the reliability
and security of the data and information stored in those systems. The Inspector
General also discussed the findings the OIG’s FY 2015 FISMA audit, noting areas
where immediate action and attention are needed. Specifically, the results of the
OIG’s penetration testing revealed a key weakness in the Department’s ability to
detect unauthorized activity inside its computer networks, and the Department’s
and FSA’s ability to adequately oversee its contractors and ensure that only people
with appropriate permission have access to the Department’s data. Inspector
General Tighe stated that the Department and FSA must work harder to address
existing weaknesses so that they can be in a better position to identify and stop
ever-evolving cyber threats and increasingly sophisticated attacks on critical
information technology infrastructures.

OIG Investigation of the Chief Information Officer
In February, Deputy Inspector General Sandra Bruce testified before the U.S. House
of Representatives Committee on Oversight and Government Reform on the OIG
investigation of alleged misconduct by the Department’s Chief Information Officer,
who has since retired. Deputy Inspector General Bruce provided information on
the allegations that the OIG received and that our investigation substantiated. We
found that the Chief Information Officer operated outside business ventures with
members of his subordinate staff and received payment from subordinate employees
for services provided by the ventures; used a Department email account to conduct
outside business ventures; participated on a panel that awarded a contract to a
company owned by someone he had a personal relationship with (his participation,
however, did not result in that contract being improperly awarded); took actions
to help a relative secure employment within the Department; and made a $4,000
loan to one of his subordinate staff. Deputy Inspector General Bruce informed
the Committee that the OIG shared its investigative results with the Department
and the U.S. Department of Justice, and that the Department of Justice declined
prosecution based on the availability of administrative remedies. She also shared
that in response to the OIG investigation, the Acting Deputy Secretary provided a
memorandum to the OIG stating that overall, he and the previous Deputy Secretaries
working in consultation with the Department’s Office of General Counsel, found
that the Chief Information Officer did not violate any law or regulation, but believed
the Chief Information Officer displayed certain lapses in judgment, which were
addressed through counseling.
                           Office of Inspector General Semiannual Report  45




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
OMB’s “Uniform Administrative Requirements, Cost Principles, and Audit Requirements
for Federal Awards” (known as the “Super Circular”) requires entities such as State
and local governments, universities, and nonprofit organizations that spend $750,000
or more in Federal funds in 1 year to obtain an audit, referred to as a “single audit.”
Additionally, for-profit institutions and their servicers that participate in the Federal
student aid programs and for-profit lenders and their servicers that participate in
specific Federal student aid programs are required to undergo annual audits performed
by independent public accountants in accordance with audit guides 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 25 quality control reviews of engagements conducted by
24 different independent public auditors or offices of firms with multiple offices.
We concluded that 8 (32 percent) were acceptable or acceptable with minor issues,
13 (52 percent) were technically deficient, and 4 (16 percent) were unacceptable.
In addition, we referred one independent public auditor to the American Institute
of Certified Public Accountants and the independent public auditor’s State Board
of Accountancy for possible disciplinary actions. We made this referral due to the
independent public auditor’s unacceptable work.
46  Office of Inspector General Semiannual Report




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 are members
         of CIGIE’s Assistant Inspector General for Investigations Subcommittee, the Federal Audit Executive
         Council, 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 Federal representative for the Western Forum, chair of the Southwestern Forum, and
         officers of the Southeastern Forum and the New York/New Jersey Forum.
                                                       Office of Inspector General Semiannual Report  47




   •	   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
   •	   S.2450, The Administrative Leave Act of 2016. The OIG provided comments to OMB regarding the
        bill’s initial limitation of 10 days for investigative leave, as that may not be sufficient time for Federal
        investigators to complete an investigation. The OIG also provided similar comments to OMB regarding
        H.R.4359, the Administrative Leave Reform Act.

   •	   FAR Case 2011-020, Basic Safeguarding of Covered Contractor Information Systems. The OIG
        provided comments to OMB related to ensuring that commercial off-the-shelf products meet Federal
        security requirements in particular cases, such as when a contractor uses a commercial off-the-shelf
        cloud service.

   •	   Appendix II, Implementation of the Government Paperwork Elimination Act and Appendix III,
        Security of Federal Information Resources, to OMB Circular No. A-130, Management of Federal
        Information Resources. The OIG coordinated with other OIGs to provide technical and clarifying
        comments on the appendices to ensure that agencies ensure that terms and conditions of contracts
        and other agreements include sufficient provisions for Federal Government notification and access,
        as well as cooperation with agency personnel and Inspectors General.

   •	   Department Directive, Consultation and Coordination with American Indian and Alaska Native
        Tribal Governments. The OIG made technical comments.

   •	   Department Directive, Use of Official Headquarters Motor Pool Vehicles. The OIG made technical
        comments.

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

   •	   Department Directive, Alternative Dispute Resolution for Equal Employment Opportunity
        Complaints of Discrimination. The OIG made technical comments.

   •	   Department Directive, Delegations of Authority. The OIG made technical comments.

   •	   Department Directive, Space Management. The OIG made technical comments.

   •	   Department Directive, Records and Information Management Program. The OIG made technical
        comments.

   •	   Department Directive, Acceptance of Payment for Official Travel from a Non-Federal Source.
        The OIG made technical comments.
  Annexes and
Required Tables
                                                          Office of Inspector General Semiannual Report  51



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 OIG issued its findings related to a peer
review it conducted of the OIG for the period April 1, 2014, through March 31, 2015. Our office received a peer
review rating of pass. There were no outstanding recommendations from prior peer reviews. The Environmental
Protection Agency OIG report was issued in October 2015 and is available on our Web site.

The OIG conducted a peer review of U.S. Department of Labor OIG for the period October 1, 2014, through
September 31, 2015. The Department of Labor OIG received a peer review rating of pass. There were no
outstanding recommendations from prior peer reviews. We issued the report in March 2016.
52  Office of Inspector General Semiannual Report


Required Tables
The following provides acronyms, definitions, and other information relevant to
Tables 1-6.

Acronyms and Abbreviations Used in the Required Tables
FSA		            Federal Student Aid
IES		            Institute of Education Sciences
IG Act		         Inspector General Act of 1978
OCFO		           Office of the Chief Financial Officer
OCIO		           Office of the Chief Information Officer
OCR		            Office for Civil Rights
OCTAE		          Office of Career, Technical, and Adult Education
ODS		            Office of the Deputy Secretary
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
OUS		            Office of the Undersecretary
Recs		           Recommendations

Definitions
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.
Special Projects. Special Projects include OIG work that is not classified as an audit,
attestation, inspection, or any other type of alternative product. Depending on the
nature and work involved, the special project may result in a report issued outside
the OIG. Information presented in the special project report varies based on the
reason for the special project (for example, response to congressional inquiry or
other evaluation and analysis). The report may contain suggestions.
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  53


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
                      (October 1, 2015, Through March 31, 2016)

                      Matters Referred to Prosecutive Authorities                                            6
5(a)(4)
                      Statistical Profile for FY 2015 (October 1, 2015, Through March 31, 2016)

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
                      (October 1, 2015, Through March 31, 2016)

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 October 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       N/A
5(a)(13)
                      Financial Management Improvement Act of 1996
54  Office of Inspector General Semiannual Report


Table 1. Significant Recommendations Described in Previous Semiannual
Reports to Congress on Which Corrective Action Has Not Been Completed
(October 1, 2015, Through March 31, 2016)
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 of
                                                                      Date of    Number of                   Projected
          Report Type      Report Title (Prior SAR        Date                                 Significant
 Office                                                             Management   Significant                  Action
          and Number        Number and Page)             Issued                                   Recs
                                                                     Decision    Recs Open                     Date
                                                                                               Completed


 FSA      Audit           Fiscal Years 2014 and 2013     11/14/14     1/29/15        2             2          7/31/17
          A17O0002        Financial Statements
          New             Federal Student Aid
                          (OCFO is also designated
                          as an action official)
                          (SAR 70, page 41)

 FSA      Audit           Oversight of Guaranty          9/29/14     11/14/14        1             4          4/29/16
          A06L0003        Agencies During the
          New             Phase-Out of the Federal
                          Family Education Loan
                          Program (SAR 69, page 45)

 FSA      Audit           Handling of Borrow             7/11/14      9/9/14         3             8          7/29/16
          A06M0012        Complaints Against
                          Private Collection
                          Agencies (SAR 69, page 45)

 OCFO     Audit           Fiscal Years 2014 and 2013     11/14/14     2/26/15        2             2          9/30/17
          A17O0001        Financial Statements U.S.
          New             Department of Education
                          (FSA is also designated as
                          an action official) (SAR 70,
                          page 41)

 OCIO     Audit           The U.S. Department of         11/12/14    12/18/14        1             19         9/26/16
          A11O0001        Education’s Compliance
          New             with the Federal
                          Information Security
                          Management Act of
                          2002 for Fiscal Year 2014
                          (The report and the
                          recommendations are
                          addressed to ODS and
                          OUS) (SAR 70, page 41)

 OCIO     Audit           The U.S. Department of         10/18/11     1/3/12         1             17         4/29/16
          A11L0003        Education’s Compliance
                          with the Federal
                          Information Security
                          Management Act for Fiscal
                          Year 2011 (FSA is also
                          designated as an action
                          official) (SAR 64, page 36)
                                                      Office of Inspector General Semiannual Report  55



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


OII      Audit         The Office of Innovation    9/25/12     6/26/14        3             4          9/30/16
         A02L0002      and Improvement’s
                       Oversight and Monitoring
                       of the Charter Schools
                       Program’s Planning and
                       Implementation Grants
                       (SAR 65, page 40)

OPE      Audit         Office of Postsecondary     9/30/14    11/24/14        1             2          4/30/16
         A06N0002      Education Duplication
         New           Effort with Discretionary
                       Grants (SAR 69, page 46)

OSERS    Audit         Payback Provisions of       4/25/14     6/3/14         2             13        12/30/16
         A19M0004      the Rehabilitation Long-
                       Term Training Program
                       (SAR 69, page 46)
56  Office of Inspector General Semiannual Report


Table 2. Audit and Other Reports on Department Programs and Activities
(October 1, 2015, Through March 31, 2016)
Section 5(a)(6) of the IG Act, as amended, requires a listing of each report completed by OIG during the reporting period.

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

 FSA          Audit         Functionality of the Debt           11/5/15            -                  -            10
              A02N0004      Management Collection System
                            2

 FSA          Audit         Fiscal Years 2015 and 2014          11/13/15           -                  -            4
              A17P0002      Financial Statements
                            Federal Student Aid
                            (OCFO is copied on report)

 IES          Audit         Audit of the Small Business         3/25/16            -                  -            1
              A19P0007      Innovation Research Program
                            Regulations and Operating
                            Procedures

 OCFO         Audit         Massachusetts Department            1/25/16            -                  -            5
              A09P0001      of Elementary and Secondary
                            Education’s Oversight of Local
                            Educational Agency Single Audit
                            Resolution

 OCFO         Audit         Fiscal Years 2015 and 2014          11/13/15           -                  -            4
              A17P0001      Financial Statements,
                            U.S. Department of Education
                            (FSA is copied on report)

 OCFO         Audit         Fiscal Years 2015 and 2014          11/16/15           -                  -            -
              A17P0003      Closing Package Financial
                            Statements, U.S. Department of
                            Education

 OCFO         Special       Completion of OIG Risk              1/15/16            -                  -            -
              Project       Assessment of the Department’s
              S19P0009      Purchase Card Program for Fiscal
                            Year 2015

 OCIO         Audit         The U.S. Department of              11/13/15           -                  -            26
              A11P0001      Education’s Federal Information
                            Security Modernization Act of
                            2014 Report For Fiscal Year 2015
                            (Report is addressed to ODS and
                            OUS)

 OCR          Audit         The Resolution of Discrimination    12/10/15           -                  -            4
              A19N0002      Complaints by the Department’s
                            Office for Civil Rights


 OCTAE        Audit         The U.S. Department of              3/28/16            -                  -            1
              A05P0002      Education’s Oversight of the Carl
                            D. Perkins Career and Technical
                            Education Improvement Act of
                            2006 Program
                                                             Office of Inspector General Semiannual Report  57


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

    ODS       Audit      Management Certifications of           2/11/16          -               -           5
              A06O0001   Data Reliability

    OESE      Audit      The Tennessee Department of            3/30/16      $242,816            -          11
              A05O0004   Education’s Administration of
                         a Race to the Top Grant (OCFO
                         is also designated as an action
                         official)

    OESE      Audit      State and District Monitoring          3/17/16      $263,4101        $121,311      10
              A09O0009   of School Improvement Grant
                         Contractors in California

    OESE      Audit      Audit of the Followup Process         12/17/15          -               -           4
              A19P0002   for External Audits in the Office
                         of Elementary and Secondary
                         Education

    OSERS     Audit      Opportunities for Ohioans with         3/1/16           -               -           4
              A03P0001   Disabilities’ Case Service Report
                         Data Quality

    OSERS     Audit      Pennsylvania’s Department of           3/2/16           -               -           5
              A03P0002   Labor and Industry, Office of
                         Vocational Rehabilitation’s Case
                         Service Report Data Quality

    OSERS     Audit      California Department of              12/10/15          -               -           7
              A09O0008   Rehabilitation Case Service
                         Report Data Quality

    Total                                                                   $506,226         $121,311      101

1




1
 Audit Report A09O0009 total questioned costs includes $142,099 in other recommended recoveries and
$121,311 in unsupported costs.
58  Office of Inspector General Semiannual Report


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    (Includes Unsupported         Unsupported Costs
                                                                      Costs)

 A. For which no management decision has been         9             $49,147,240                   $34,976
    made before the commencement of the
    reporting period

 B. Which were issued during the reporting period     2              $506,226                    $121,311
       Subtotals (A + B)                              11            $49,653,466                  $156,287

 C. For which a management decision was made
    during the reporting period                       2              $3,916,931                     $0
       (i) Dollar value of disallowed costs                          $3,916,931                     $0
       (ii) Dollar value of costs not disallowed                         $0                         $0

 D. For which no management decision was made         9             $45,736,535                  $156,287
    by the end of the reporting period
                                                           Office of Inspector General Semiannual Report  59


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 inspection 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
60  Office of Inspector General Semiannual Report


Table 5A. Unresolved Audit Reports Issued Before October 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 issued during the previous SAR period follow in Table 5-B. Reports that are new since
the last reporting period are labeled “new” after the report number. All other reports were reported in a
previous SAR.

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

 FSA          Audit          Capella University’s Compliance with Selected      3/7/08     $589,892         9
              A05G0017       Provisions of the HEA and Corresponding
                             Regulations (SAR 56, page 25)
                             Current Status: FSA informed us that it is
                             currently working to resolve this audit.

 FSA          Audit          Ashford University’s Administration of the Title   1/21/11     $29,036         13
              A05I0014       IV 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                  3/29/12   $42,362,291       19
              A05K0012       Administration of the Title IV Programs (SAR 64,
                             page 36)
                             Current Status: Final Audit Determination is
                             under appeal by school.

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

 FSA          Audit          Colorado Technical University’s Administration     9/21/12    $173,164         8
              A09K0008       of Title IV Programs (SAR 65, page 40)
                             Current Status: FSA and OIG have been unable
                             to agree on audit resolution. FSA plans to refer
                             audit to the Department’s Audit Follow-up
                             Official for dispute resolution.

 FSA          Audit          SOLEX College’s Administration of Selected         9/30/15    $1,795,500       6
              A05O0007       Aspects of the Title IV Programs (SAR 71,
              New            page 43)
                             Current Status: FSA informed us that it is
                             currently working to resolve this audit.

 OCFO         Audit          The North Carolina Department of Public            7/13/15     $82,484         6
              A05O0005       Instruction’s Administration of its Race to the
              New            Top Grant (OESE is also designated as an action
                             official) (SAR 71, page 43)
                             Current Status: OCFO informed us that the
                             revised program determination letter is under
                             review.

 Total	                                                                                   $45,265,285       83
                                                               Office of Inspector General Semiannual Report  61


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,
         Office           Number, and Date                                  Summary and Current Status
                              Issued
FSA                      SOLEX College’s             Our audit sought to determine whether SOLEX College disbursed Title
                         Administration of           IV funds only to eligible students enrolled in Title IV-eligible programs.
                         Selected Aspects of         We found that the school did not do so for its two English as a Second
                         the Title IV Programs       Language programs. As a result, the school improperly disbursed more
                         (SAR 71, page 43)           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. We made
                         Audit A05O0007
                                                     six recommendations, including that FSA require SOLEX College to return
                         9/30/15                     more than $1.79 million that it improperly disbursed to 413 students, cease
                                                     disbursing Pell grant funds to any students enrolled in its two English as a
                                                     Second Language 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 English as a
                                                     Second Language programs. SOLEX College officials disagreed with one
                                                     finding and its recommendations and did not explicitly agree or disagree
                                                     with the other finding and recommendations.
                                                     Current Status: FSA informed us that it is currently working to resolve this
                                                     audit.
OCFO                     The North Carolina          We found that the North Carolina Department of Public Instruction could
                         Department of               improve its administration of its Race to the Top grant by strengthening
                         Public Instruction’s        its system of internal control over contracting and by more closely
                         Administration of           monitoring the fiscal activity of participating local educational agencies
                         its Race to the Top         and charter schools to ensure that they complied with all applicable Federal
                         Grant (OESE is also         requirements. We made six recommendations to address our findings.
                         designated as an            North Carolina neither agreed nor disagreed with our findings but agreed
                         action official) (SAR 71,   with five of our six recommendations.
                         page 43)
                                                     Current Status: OCFO informed us that the revised program
                         Audit A05O0005              determination letter is under review.
                         7/13/15
62  Office of Inspector General Semiannual Report


Table 6. Statistical Profile for October 1, 2015, Through
March 31, 2016
                                                            October 1, 2015–
                         Accomplishment
                                                             March 31, 2016

 Audit Reports Issued                                                           16

 Inspection Reports Issued                                                      0

 Questioned Costs (Including Unsupported Costs)                         $506,226

 Recommendations for Better Use of Funds                                       $0

 Other Products Issued                                                          1

 Reports Resolved By Program Managers                                           13

 Questioned Costs (Including Unsupported Costs) Sustained             $3,916,931

 Unsupported Costs Sustained                                                   $0

 Additional Disallowances Identified by Program Managers              $1,395,416

 Management Commitment to the Better Use of Funds                              $0

 Investigative Cases Opened                                                     31

 Investigative Cases Closed                                                    48

 Cases Active at the End of the Reporting Period                               259

 Prosecutorial Decisions Accepted                                              34

 Prosecutorial Decisions Declined                                              44

 Indictments/Informations                                                      54

 Convictions/Pleas                                                              42

 Fines Ordered                                                           $10,500

 Restitution Payments Ordered                                         $7,269,439

 Civil Settlements/Judgments (number)                                           8

 Civil Settlements/Judgments (amount)                                $110,117,153

 Recoveries                                                              $64,492

 Forfeitures/Seizures                                                    $19,500

 Estimated Savings                                                   $68,220,915

 Suspensions Referred to Department                                             32

 Debarments Referred to Department                                              4

 Debarments Imposed by OIG                                                      0
                  Office of Inspector General Semiannual Report  63


Acronyms and Abbreviations
CIGIE			         Council of Inspectors General on Integrity and Efficiency

Department		     U.S. Department of Education

FISMA			         Federal Information Security Management Act of 2002

FSA			           Federal Student Aid

FY			Fiscal Year

LEA			           Local Educational Agency

OIG			           Office of Inspector General

OMB			           Office of Management and Budget

Recovery Act		   American Recovery and Reinvestment Act of 2009

RSA			           Rehabilitation Services Administration

SEA			           State Educational Agency

SES			           Supplemental Educational Services

Title IV			      Higher Education Act of 1965, Title IV
64  Office of Inspector General Semiannual Report
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 toll-free or write the Office of Inspector General.

        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

You may make a report 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