Statement of Inspector General Kathleen Tighe on OIG work involving improper payments, Committee on Appropriations, Subcommittee on Labor, Health and Human Services, Education, and Related Agencies, March 17, 2011. PDF (30K)

Published by the Department of Education, Office of Inspector General on 2011-03-17.

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

                       Statement of Kathleen S. Tighe, Inspector General
                   U.S. Department of Education Office of Inspector General
                            Before the Committee on Appropriations
    Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
                             United States House of Representatives
                                         March 17, 2011

Chairman Rehberg, Ranking Member DeLauro, and Members of the Subcommittee:

Thank you for inviting me here today to discuss the work of the U.S. Department of Education

(Department) Office of Inspector General (OIG) involving improper payments. This is my first

opportunity to testify before this Subcommittee since my confirmation last year as the Inspector

General. It is an honor to lead this organization and to have the opportunity to work with this

Subcommittee to help ensure that the taxpayer dollars that fund the Department’s programs and

operations are used in accordance with Federal statutes and regulations and meet the needs of

America’s students and families.

For over 30 years, the OIG has worked to promote the efficiency, effectiveness, and integrity of

Federal education programs and operations. We aggressively identify and pursue waste, fraud,

and abuse involving the Department’s programs and operations. An integral part of this work

includes our efforts to help the Department prevent and detect improper payments. Our work

related to improper payments has evolved and increased over the years to include evaluating

specific Departmental controls to prevent and detect improper payments; reviewing and

providing recommendations on the Department’s improper payment risk assessments; auditing

the Department’s Federal Student Aid office’s (FSA) methodology for estimating improper

payments in the Federal Family Education Loan Program (FFEL); and reviewing, auditing, and

investigating major recipients of Federal funds. Where we have identified improper payments,

we have provided recommendations for improvement. The Department has generally been

receptive to our suggestions and has taken corrective actions to address identified weaknesses,

which in some cases, have led to the recovery of improperly disbursed funds.

As requested, I will discuss the major areas where we have identified improper payments, the

Department’s response to those findings, and our current efforts to help the Department address

the challenges it faces in preventing, identifying, and recovering improper payments.

Improper Payments involving Federal Student Aid Programs

One area where we have identified improper payments is the Federal student aid programs. As a

result of the Improper Payments Information Act of 2002 and guidance from the Office of

Management and Budget (OMB), the Department identified FFEL as a program at significant

risk of improper payments and thereby subject to additional oversight, including an annual

estimation of improper payments. To help the Department improve both its estimation of

improper payments and its controls to stop ongoing and prevent future improper payments, we

conducted an audit of the Department’s FFEL improper payment estimation process, as well as a

series of audits on improper special allowance billings by lenders.

Our audit of the FFEL improper payment process found that FSA used different methodologies

for estimating the improper payment rates for FY 2006 and FY 2007 and planned to use another

methodology for FY 2008. While FSA consulted with OMB staff during the design and

execution of the methodologies and generally followed the statutory definition and OMB

guidance for loan guarantee programs, we found several significant factors affected the

reliability of the calculated rates. To resolve the audit, OMB met with FSA and our office.

Agreement was reached that rather than trying to calculate an overall rate for an extremely

complicated program with many different payment streams, FSA would not calculate and report

a rate for several years while it developed a methodology focusing on specific types of high-risk

payments. FSA’s risk analyses to date have not yielded any result that could help inform

decisions on improper payment measurement and no error rate or estimate for the FFEL Program

for FY 2010 was reported.

In 2005-2007, OIG issued a series of audits on improper special allowance billings by lenders.

Our report of one lender, the National Education Loan Network or Nelnet, found that the lender

had improperly billed the Department for loans that did not qualify under a special allowance

rate. We estimated that Nelnet had received about $278 million in improper payments for the

time period reviewed, and if the abuse was not stopped, an additional $882 million of improper

payments would be paid over the life of the ineligible loans. The Department concurred with our

audit and ceased payment on that particular type of special allowance billing on all pending

December 2006 claims from 40 lenders until independent audits were conducted. We worked in

collaboration with the Department to develop a methodology to identify eligible and ineligible

loans and also published a special audit guide to be used by independent auditors. Independent

audits conducted over the next year identified that 90 percent of the loans billed were ineligible

and, as a result, prevented well over a billion dollars in improper payments.

Improper Payments involving Elementary and Secondary Education Programs

In recent years, we have performed a substantial amount of work addressing fiscal issues at State

educational agencies (SEA) and local educational agencies (LEA). For example, in January

2010, we issued an audit of the Philadelphia School District in which we found that expenditures

totaling more than $138 million were either unallowable or inadequately supported. Also, in

July 2009, we compiled a report for the Department on the pervasive fiscal issues reported in

over 40 OIG audits of SEAs and LEAs, which collectively had identified approximately $62

million in unallowable costs, $119 million in inadequately documented costs, and $1.4 billion in

funds determined to be at risk. These amounts were, in most cases, a direct result of internal

control weaknesses, including a lack of adequate policies and procedures, policies and

procedures that were in place but not followed, and a lack of understanding regarding program

regulations and guidance. To address these weaknesses, we suggested that the Department

enhance its guidance to SEAs and LEAs on how to implement the administrative requirements of

Federal grants and ensure that SEA and LEA officials understand the importance of complying

with the requirements. In some cases, the Department has taken action by issuing guidance to

reduce the risk of improper payments and by requiring the States to return funds.

Our work has also uncovered fraud which could have been prevented by stronger internal

controls or proper supervision and oversight. We worked with the Department to develop a

technical assistance plan and training curricula for SEAs and LEAs on detecting and reporting


Current OIG Efforts

Our history of work involving improper payments has enabled us to be proactive in helping the

Department and recipients prevent and reduce improper payments. Perhaps nowhere is this more

evident than with our Recovery Act work. Based on our previous work involving fiscal issues at

SEAs and LEAs, we developed and implemented a strategy to proactively and quickly identify

potential control weaknesses and improve the administration of Recovery Act funds prior to

substantial monies going out. The response to our efforts has been generally positive, with the

Department and a number of State and local agencies taking timely action to address our findings

and implement our recommendations, which should reduce the occurrence of improper

payments. While our Recovery Act work is still underway, we have not yet confirmed any

significant improper payments involving Recovery Act funds by any of the SEAs or LEAs we

have thus far reviewed.

Compliance with New Requirements

In 2010, both the White House and the 111th Congress took actions to require Federal agencies to

better identify and reduce improper payments. In its FY 2010 Annual Financial Report,

Department officials stated that they need to continue to explore additional opportunities for

identifying and reducing potential improper payments and to ensure compliance with the new

requirements. We are committed to helping them do so and will continue to provide suggestions

to identify, reduce, and recover improper payments. In addition, we are initiating a review to

more closely examine the Department’s methodology for identifying high-dollar overpayments.

We will continue to review the Department’s quarterly reports on high-dollar overpayments and

evaluate actions it is taking. Furthermore, we will evaluate the Department’s compliance with

the Improper Payments Elimination and Recovery Act of 2010 and issue an annual report on the

Department’s compliance, as required by the statute.

Mr. Chairman, this concludes my remarks. I am happy to answer your questions.