oversight

FCA's Student Loan Repayment Program

Published by the Farm Credit Administration, Office of Inspector General on 2013-09-23.

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

OFFICE OF
INSPECTOR GENERAL      Report of Audit

                      FCA’s Student Loan
                      Repayment Program
                           A-13-02

                         Auditor in Charge
                          Tammy Rapp

                    Issued September 23, 2013




                     FARM CREDIT ADMINISTRATION
Farm Credit Administration	                          Office of Inspector General
                                                     1501 Farm Credit Drive
                                                     McLean, Virginia 22102-5090




September 23, 2013

The Honorable Jill Long Thompson, Board Chair and Chief Executive Officer
The Honorable Kenneth A. Spearman, Board Member
The Honorable Leland A. Strom, Board Member
Farm Credit Administration
1501 Farm Credit Drive
McLean, Virginia 22102-5090

Dear Board Chair Long Thompson and FCA Board Members Spearman and Strom:

The Office of Inspector General (OIG) completed an audit of the FCA’s Student Loan
Repayment Program. The objective of this audit was to determine the effectiveness of
controls related to student loan repayment benefits.

We determined the Agency’s policy governing student loan repayment benefits is
generally consistent with related laws and regulations; however varying levels of
compliance with the policy and its controls have evolved over time.

We would like to highlight the cooperative actions of the Office of Management Services
(OMS) to address issues identified during the audit. OMS quickly initiated changes and
took the following actions prior to issuing this final report:
   1.	 Senior management and the Chief Operating Officer (COO) evaluated the student
       loan repayment program and determined it was not consistently achieving its
       intended goal of recruiting highly skilled candidates;
   2.	 Alternative tools were identified by OMS to assist with recruiting efforts and
       provide incentive to a larger pool of candidates.
   3.	 As a result of the evaluation performed by OMS, the COO suspended the student
       loan repayment program; and
   4.	 FCA agreed to improve internal controls and documentation for outstanding
       student loan repayment commitments.
                                                                                         2

We appreciate the courtesies and professionalism extended to OIG staff by OMS
personnel. If you have any questions about this audit, I would be pleased to meet with
you at your convenience.

Respectfully,



Elizabeth M. Dean

Inspector General


Enclosure
Farm Credit Administration
Office of Inspector General
                              September 23, 2013
Introduction and Background ………………………………………………………… 3


Objectives, Scope, and Methodology .………………………………………………                                            5


Overall Conclusion ………………………………………………………………………                                                    7


Governing FCA Policy: PPM 852 ………………………………………………………                                               8


Observations:
  1.   Nomination forms ……………………………………………………………………………………………                                      9

  2.   Maximum $ benefit …………………………………………………………………………………………                                     11

  3.   Gross Benefit vs. Net Payment ……………………………………………………………………………                              12

  4.   Installment payments ………………………………………………………………………………………                                   13

  5.   Approvals ………………………………………………………………………………………………………                                        14

  6.   Independent verification of student loan documentation ……………………………………………                 16

  7.   Service requirement …………………………………………………………………………………………                                   17

  8.   Internal reporting …………………………………………………………………………………………….                                  19

  9.   Agreed-upon actions ………………………………………………………………………………………..                                  20


                                                  Farm Credit Administration Office of Inspector General
                                              Report #A-13-02 FCA’s Student Loan Repayment Program         2
Related Laws & Regulations:
     Section 5379 of Title 5, United States Code
     Part 537 of Title 5, Code of Federal Regulations

“The Federal student loan repayment program permits agencies to repay Federally insured student loans as a
recruitment or retention incentive for candidates or current employees of the agency. The program
implements 5 U.S.C. 5379, which authorizes agencies to set up their own student loan repayment programs
to attract or retain highly qualified employees.” 1

Part 537 of Title 5, Code of Federal Regulations, implements 5 U.S.C. § 5379 and contains
the following provisions:
     § 537.103         describes the elements that must be included in a student loan repayment plan before providing these
      benefits.
     § 537.104         and § 537.108 provides criteria for employee eligibility and ineligibility.
     § 537.105         describes criteria before authorizing benefit payments.
     § 537.106         provides conditions and procedures for providing student loan repayment benefits.
     § 537.107         requires a service agreement and conditions to be included.
     § 537.109         provides for reimbursement to the government if certain conditions are not met.
     § 537.110         requires documentation to be maintained and reporting to Office of Personnel Management (OPM).


1 http://www.opm.gov/policy-data-oversight/pay-leave/student-loan-repayment/




                                                                                   Farm Credit Administration Office of Inspector General
                                                                               Report #A-13-02 FCA’s Student Loan Repayment Program         3
FCA Student Loan Repayment Benefits:                                Student Loan 

Fiscal Year (FY) 2010 – FY 2012                               Repayment Benefits

  $189,809                                      80,000                                   $75,111
                                                                            $71,982
  35 employees*
                                                 70,000

                                                 60,000
Positions:
                                                 50,000
   Examiners                                                $42,716
   Information Technology Specialists           40,000

   Financial Analysts                           30,000
   Client Services Specialists
                                                 20,000

                                                 10,000

                                                     -
                                                             FY 2010        FY 2011       FY 2012
                                                           14employees 17employees 17employees

*Some employees received installment payments.




                                                     Farm Credit Administration Office of Inspector General
                                                 Report #A-13-02 FCA’s Student Loan Repayment Program         4
Objective:
   Determine the effectiveness of controls related to student loan repayments.


Scope and Methodology:
   Student loan repayment benefits
   FY 2010 – FY 2012
   Performed the following procedures:
    ◦	 Identified and reviewed related laws, regulations, and Agency policies and procedures
    ◦	 Identified payments made for student loan repayment benefits
    ◦	 Reconciled data provided by Finance Team and Human Resources (HR) Specialists
    ◦	 Conducted interviews with HR Specialists, Supervisory HR Specialist, Deputy Chief Financial Officer
       (CFO), former Chief Human Capital Officer (CHCO), current CHCO/CFO/Director Office of
       Management Services (OMS)
    ◦	 Examined related documentation for compliance with applicable policies and procedures
    ◦	 Identified significant internal control processes and determined if they were operating effectively
    ◦	 Reviewed Farm Credit Administration’s annual reports provided to OPM




                                                              Farm Credit Administration Office of Inspector General
                                                          Report #A-13-02 FCA’s Student Loan Repayment Program         5
We conducted this performance audit in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We
believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on
our audit objectives.


Management is responsible for developing and maintaining effective internal controls. We reviewed
internal controls identified as significant to the audit objectives. Internal control weaknesses identified
and respective recommendations are presented in this report.


This audit was performed at the FCA Headquarters in McLean, Virginia, from February through July 2013.
At the conclusion of this audit, we provided management with a draft report of our observations and held
an exit conference on August 1, 2013.




                                                                Farm Credit Administration Office of Inspector General
                                                            Report #A-13-02 FCA’s Student Loan Repayment Program         6
FCA PPM 852: Student Loan Program
   ◦	 Issued September 2002
   ◦	 Generally consistent with Part 537 of Title 5, Code of Federal Regulations
   ◦	 Contains several controls
           Nomination form required for approval
           Maximum $ benefit per employee and per year
           Various approvals required
           Independent verification with lender of student loan balances
           Requirement for FCA service commitment following FCA loan repayment
           Internal reporting with findings and recommendations for the program


In practice, varying levels of compliance with controls evolved over time.

FCA took the following actions to address issues identified during the audit:
   ◦	   Senior management and the Chief Operating Officer (COO) evaluated the student loan repayment program
        and determined it was not consistently achieving its intended goal of recruiting highly skilled candidates.
   ◦	   Alternative tools were identified by OMS to assist with recruiting efforts and provide incentive to a larger
        pool of candidates.
   ◦	   In a September 12, 2013 memorandum, the COO suspended the student loan repayment benefit program.
   ◦	   OMS agreed to improve internal controls and documentation for outstanding student loan repayment
        commitments.




                                                                    Farm Credit Administration Office of Inspector General
                                                                Report #A-13-02 FCA’s Student Loan Repayment Program         7
Authority based on 5 U.S.C. § 5379 and 5 C.F.R. Part 537
   Generally consistent with authorities cited
   According to the former CHCO, PPM 852 refers to “incorrect” authorities due to FCA’ s
    statutory exemption from Subchapter III of Chapter 53, Title 5, United States Code


Changes in practices deviated from PPM 852
   Alternative practices were not approved by Chairman and Chief Executive Officer (CEO)


Differences identified between PPM and authorities cited
   Federal transfers
    ◦	       § 537.105 prohibits student loan repayment benefits to recruit a current Federal employee
    ◦	       PPM 852 does not address Federal transfers
    ◦	       FCA recruited an employee who transferred from another Federal agency. This employee received student
             loan repayment benefits they were not entitled to under § 537.105.
    ◦	       In the future, FCA will not authorize student loan benefits for current Federal employees recruited
   Record retention
    ◦	       § 537.110 requires records to be maintained a minimum of three years from the end of the service period
    ◦	       PPM 852 requires records to be maintained for a period of three years
               The record retention period in the PPM is three years shorter than required by § 537.110.




                                                                                  Farm Credit Administration Office of Inspector General
                                                                              Report #A-13-02 FCA’s Student Loan Repayment Program         8
Part 537, Title 5, CFR                                              FCA Policy: PPM 852
“The written determination must show the                            “…must be made in writing and must include the
employee (or job candidate) meets the criteria                      basis for the recommendations and the proposed
specified in §537.105.”                                             amount to be paid.”


FCA uses a nomination form which includes the following attributes:
   Employee Name, Position, and Grade
   Required period of service
   Name and address of loan holder and loan repayment amount
   Terms of repayment and proposed payment
   Initial request or renewal
   Management certification and justification for benefit
    ◦       Retention of current employee
              i.e. “high or unique qualifications of the employee”
    ◦       Recruitment of new employee
              i.e. “difficulty in filling the position with a highly qualified candidate”
   Approvals




                                                                                 Farm Credit Administration Office of Inspector General
                                                                             Report #A-13-02 FCA’s Student Loan Repayment Program         9
Observations:


   All student loan repayment benefits were supported by a completed nomination form.

   No annual extensions or renewals were prepared.
    ◦	   PPM 852: “A determination to extend the benefit for retention purposes must be submitted

         annually.”

    ◦	   For remaining student loan repayment commitments, OMS will make one payment in lieu of

         multiple eliminating need for annual renewal



   Most justifications for the benefit were weak and did not describe how the nominee was
    highly qualified.
    ◦	   PPM 852: Approval based on either filling a position with a highly qualified candidate or retaining
         an employee with high or unique qualifications
    ◦	   Examples of justification on FCA nomination forms:
            “authorized in vacancy announcement”
            “Included as a recruitment benefit on the FCA website”




                                                                Farm Credit Administration Office of Inspector General 

                                                            Report #A-13-02 FCA’s Student Loan Repayment Program 10

 Part 537, Title 5, CFR                    FCA Policy: PPM 852
 $10,000/employee/year                     $10,000/employee/year

 $60,000/employee
                         $60,000/employee


Observations in practice at FCA:
  Maximum student loan repayment benefit paid per fiscal year
  ◦      $9,000

  Maximum student loan repayment benefit in total paid per FCA employee

  ◦      $9,000


Student Loan Repayment Benefit
  “The dollar value of this benefit is the gross amount credited to the employee at the time of a loan
  payment to the holder of the student loan before deducting any employee tax withholdings from that
  gross amount…” §537.102

      Tax withholdings required by §537.106 reduce student loan repayment benefit

      Maximum Student Loan Repayment Benefit (gross)                       $9,000

      Less Tax Withholdings                                                -3,000

      Loan Payment to Lender (net)                                         $6,000




                                                                      Farm Credit Administration Office of Inspector General 

                                                                  Report #A-13-02 FCA’s Student Loan Repayment Program 11

Observations:

  Gross student loan repayment benefit more than approved loan repayment benefit
  ◦     3 cases where gross student loan benefit exceeded approved benefit
  ◦     Approved loan repayment benefit close to student loan balance (less than $9,000)
  ◦     Net loan payment close to approved loan repayment benefit (difference likely due to interest)
  ◦     Gross student loan repayment benefit included withholdings

  Inconsistent treatment when student loan balance was less than $9,000
  ◦     Some gross benefits included withholdings (i.e., “gross up*”)
  ◦     For remaining commitments, OMS will not “gross up” student loan repayment benefits
      Examples for illustrative purposes                                   $9,000 benefit                   Balance less           Balance less
                                                                                                            than $9,000            than $9,000
                                                                                                            (with gross up)        (without gross up)
      Student Loan Balance                                                              >$9,000                           $6,000              $8,000

      Approved Loan Repayment Benefit                                                      $9,000                         $6,000              $8,000

      Gross-Student Loan Repayment Benefit                                                 $9,000                         $9,000              $8,000

      Withholdings                                                                         -3,000                         -3,000              -3,000

      Net-Loan Payment to Lender                                                           $6,000                         $6,000              $5,000

       *Gross up – increasing the student loan benefit by required tax withholding to increase the net amount paid to the lender




                                                                                                               Farm Credit Administration Office of Inspector General
                                                                                                           Report #A-13-02 FCA’s Student Loan Repayment Program         12
Student loan benefit payments made direct to lender
     Installment payments not addressed in PPM 852


Generally, paid in 3 installments to lender (prior to April 2012)
1.    Security clearance granted
2.    1st year anniversary
3.    2nd year anniversary


Observations:
     Inconsistent application of installment payments with the maximum benefit
         Office of Examination (OE)
               3 installments (FY 2010, 2011, 2012)
               2 installments (FY 2012)
         OMS
               3 installments (FY 2011)
               2 installments (FY 2010, 2012)
         Office of Regulatory Policy (ORP)
               1 installment (FY 2011)


     For remaining student loan repayment commitments, OMS will make 1 payment (after security
     clearance obtained) in lieu of multiple installments over 2-3 years



                                                             Farm Credit Administration Office of Inspector General 

                                                         Report #A-13-02 FCA’s Student Loan Repayment Program 13

Part 537, Title 5, CFR                           FCA Policy: PPM 852

“An authorized agency official must review       Office Director
and approve each written determination.”         Chief Operating Officer
                                                 Director, OMS/CFO
                                                 Office of General Counsel


Supporting forms inconsistent with PPM 852:
                                    Nomination Forms:

PPM 852 requires:         PPM 852            SharePoint
                          Attachment 1       Form 488
Recommendation by         Certification by   Signature for Office
Office Director           Office Director    Director
Approval by COO                              Signature for Chief
                                             of Staff
Approval by Director,
OMS
Written concurrence of                       Space for review
Office of General                            and concurrence of
Counsel (OGC) and CFO                        recommendations
                          Chief Human        Chief Human
                          Capital Officer    Capital Officer




                                                                        Farm Credit Administration Office of Inspector General 

                                                                    Report #A-13-02 FCA’s Student Loan Repayment Program 14

Observations from nomination forms and service agreements:

   Approvals present:
    ◦ Office Director or OE Director, Staff Development Division
         Delegation to OE Director, Staff Development Division, made by former CHCO
         No written delegation from Chief Examiner to OE Director, Staff Development Division
    ◦ Former CHCO
         Not required by the PPM


   Approvals/concurrences absent:
    ◦   COO
    ◦   OGC
    ◦   Director, OMS/CFO approval limited to OMS employees
    ◦   4 service agreements without CHCO signature
    ◦   1 service agreement without employee signature
    ◦   1 of 35 service agreements missing




                                                                    Farm Credit Administration Office of Inspector General 

                                                                Report #A-13-02 FCA’s Student Loan Repayment Program 15

    Part 537, Title 5, CFR                        FCA Policy: PPM 852
    “…agency must verify with the holder of the   “OMS staff will verify outstanding student loan
    loan…outstanding student loan that            balances with the holder of the

    qualifies…verify remaining balances…”
        loan…outstanding student loan that
                                                  qualifies…remaining balances…”


Observations:
     Verification was limited to review of documents provided by the employee
      ◦   Documentation from various loan sources




                                                                 Farm Credit Administration Office of Inspector General 

                                                             Report #A-13-02 FCA’s Student Loan Repayment Program 16

Length of service required on supporting form inconsistent with PPM 852:
    PPM 852 Attachment 2 – FCA Student Loan Repayment Service Agreement

      § 5379                §537.107            PPM 852 requires:    PPM 852            SharePoint
                                                                     Attachment 2       Form 489
      “…remain in the       “The minimum        “…a written          “…agree to         “…agree to
      service of the        period of service   agreement to         remain an          remain an
      agency for a period   to be               remain an            employee of        employee of
      specified in the      established         employee with FCA    the FCA for a      the FCA for
      agreement (not less   under a service     for at least three   period of two      a period of
      than 3 years)…”       agreement is 3      years from the       years from         three years
                            years…”             effective date of    the date the       from the
                                                the first loan       first payment      date the first
                                                repayment.”          is made…”          payment is
                                                                                        made…”
Observations:
   All FCA service agreements required a 2-year commitment
   Length of service requirement did not comply with PPM or related laws and regulations
   OMS revised PPM 852 Attachment 2 to reflect a 3-year commitment
   Change in length of service commitment not documented or approved by CEO
   Starting July 1, 2013, FCA required a 3-year commitment


                                                             Farm Credit Administration Office of Inspector General 

                                                         Report #A-13-02 FCA’s Student Loan Repayment Program 17

§537.109 and PPM 852 provide for waiver if service requirement not met
   “The COO, with the concurrence of the Office of the General Counsel and Director, OMS,
    may waive FCA’s right to recover a debt under this policy in whole or in part, if he or
    she determines that recovery would be against equity and good conscience or against
    the public interest.”


Observations:
   Waiver granted:
    ◦	   COO approval based on inaccurate information
    ◦	   No written concurrence by OGC or Director, OMS




                                                              Farm Credit Administration Office of Inspector General 

                                                          Report #A-13-02 FCA’s Student Loan Repayment Program 18

PPM 852 states:
   Office of the Director, OMS
    ◦	   “Review use of the student loan repayment authority annually and report findings and
         recommendations to the Chairman and Chief Executive Officer and senior management”


Observations:
   No internal reports prepared for Chairman and CEO and senior management




                                                             Farm Credit Administration Office of Inspector General 

                                                         Report #A-13-02 FCA’s Student Loan Repayment Program 19

1.	    OMS should update policies and procedures governing the student loan repayment
       benefit program.
      ◦	     In lieu of updating policies and procedures, FCA suspended the student loan repayment program.


2.	        OMS should identify and strengthen controls over the student loan repayment benefit
           program to ensure benefits are paid in accordance with agency policies and
           procedures.
      ◦	     Before issuance of this final report, OMS agreed to ensure all proper documentation has been
             completed and appropriate approvals are obtained for current student loan obligations.
             Additionally, OMS will independently verify student loan balances and discontinue the practice of
             “grossing up” student loan repayment benefits.


3.	        OMS should evaluate the student loan repayment benefit program to determine
           whether the program is meeting its intended objectives or needs modification.
      ◦	     OMS evaluated the existing student loan repayment benefit program and determined it was not
             consistently achieving its intended goal of recruiting highly skilled candidates.
      ◦	     Alternative tools were identified by OMS to assist with recruiting efforts and provide incentive to a
             larger pool of candidates.
      ◦	     In a September 12, 2013 memorandum, the COO suspended the student loan repayment benefit
             program.



                                                                    Farm Credit Administration Office of Inspector General 

                                                                Report #A-13-02 FCA’s Student Loan Repayment Program 20