Executive Summary: Significant Activities and Accomplishments
Cooperative Initiatives with Other ED OfficesReauthorization of theRehabilitation Act
As noted in our last Semiannual Report, the Office of Inspector General (OIG) is currently working on a series of audits that are designed to assist the Department (ED) and Congress in the upcoming reauthorization of the Rehabilitation Act. These audits address issues that were developed collaboratively with program officials and in consultation with Congressional staff during a comprehensive program survey.
- The OIG plans to issue the audit reports and provide copies to the Department's reauthorization work groups and to Congress during the next reporting period. Our work has focused on the following issue areas:
- why the rate of successful case closures varies between States;
- how well States report and use program income to improve rehabilitation outcomes; and
- whether the current allocation formula reflects the distribution of disabled indivividuals among States.
The OIG is also working with program managers and staff, as well as with State and local officials, on a comprehensive survey of Elementary and Secondary Education Act (ESEA) programs. The purpose of the survey is to identify issues we will audit over the next two years in preparation for the reauthorization of ESEA in 1999.
Cooperative Audit ResolutionAs noted in our last Semiannual Report, we have undertaken a wide-ranging project known as the Cooperative Audit Resolution and Oversight Initiative (CAROI). Under this initiative, we are working in partnership with ED program offices and States to consider alternative approaches to resolving audits in a more efficient and effective manner and rethinking how oversight can work better to help solve recurring problems.
The CAROI team includes staff from the Office of Elementary and Secondary Education (OESE), Office of the Chief Financial Officer, Office of the General Counsel, and OIG. The team has partnered with three States (Florida, Mississippi, and Washington) to better understand the issues that are important to State and local educational agencies in their administration of federally funded education programs.
The overall goal of the CAROI is to improve education programs and student performance at State and local levels through better use of audits, monitoring, and technical assistance. To accomplish this goal, the team developed four strategies:
1) Create and maintain dialogue with States
The objective of this strategy is to work with key parties to address State concerns, remove obstacles to improved program performance, foster new cooperative methods of audit resolution, and avoid recurrence of violations.
2) Work with States to resolve open audits or audits under appeal
The objective of this strategy is to work with States to resolve audits from periods covered under prior legislation in a manner more consistent with the ESEA, the Goals 2000: Educate America Act, and the School-to-Work Opportunities Act.
3) Improve the single audit process
The objectives of this strategy are:
- to ensure that single audits focus on the most important issues and concerns in ED programs; and
- to revise those portions of the Office of Management and Budget (OMB) compliance supplements applicable to programs authorized under the ESEA to reflect flexibility in a manner consistent with new education legislation.
The objective of this strategy is to improve program performance through better coordination of audits, Federal monitoring, and Federal technical assistance, while encouraging creativity and flexibility at the State and local level.
Our activities and accomplishments under each of these strategies during the reporting period are described in Abstract 1, "Significant Audits and Audit-related Activities."
Other Cooperative Efforts with the Audit and Education CommunitiesRevision to single audit requirements
Because single audits are an important part of the Department's monitoring system, the OIG has worked extensively with OMB and the General Accounting Office (GAO) in revising OMB guidance and Single Audit Act legislation, respectively. This period, revisions to the Single Audit Act were introduced in the Senate, and revisions to OMB guidance have been entered into the final OMB clearance process for issuance. When enacted/issued, the revised Act and implementing OMB guidance will provide for more efficient and effective audit coverage of ED programs.
Revision to the OMB compliance supplements for single audit
We are also working extensively with OMB to revise and update its compliance supplements for single audit. Last updated in the early '90s, the supplements provide the key compliance requirements auditors should test for and provide guidance on the types of testing to perform. Revising the supplements is a major government-wide effort; the guidance in the compliance supplements is used in virtually all audits of State, local and nonprofit recipients of Federal assistance nationwide.
In addition to revising sections under the Cooperative Audit Resolution and Oversight Initiative for programs authorized by the ESEA, this effort includes revising sections for other ED programs; revising sections for government-wide requirements; and completely reorganizing and reformatting the document. Other ED programs to be updated include special education, rehabilitative services, school-to-work, adult and vocational education, and student financial assistance programs. OMB's goal is to have a final document by December 1996.
Revision to PCIE external quality control review process
The ED/OIG has the lead in a project by the President's Council on Integrity and Efficiency (PCIE) and the Federal Audit Executive Council (the Assistant Inspectors General for Audit) to examine and revise, as appropriate, the PCIE external quality control (peer review) process. Offices of Inspector General are required to undergo an external quality control review to comply with generally accepted government auditing standards and the Inspector General Act.
This period, a paper was prepared by an ED/OIG-led project team with recommendations on certain policy issues associated with the peer review process. After these recommendations are considered by the PCIE Audit Committee, the team plans to revise and update the PCIE peer review guide.
Other cooperative initiatives
This period, OIG developed with the American Institute of Certified Public Accountants a training program for independent public accountants (IPAs) who audit schools that receive funding under the Title IV student financial assistance programs. The training will be presented by OIG staff as a one-day strategic briefing on the new SFA Audit Guide in eight cities. At least 1,000 IPAs are expected to attend.
Audit Quality Issues: Settlement in Non-Federal Audit SuitThis period we began a new initiative focused on evaluating the results of non-Federal audits and ED program reviews of institutions participating in the Title IV programs. The objective of our initiative is to identify instances in which non-Federal audits of such institutions contain no findings while the program reviews contain significant findings of noncompliance. These findings frequently result in significant liabilities for institutions.
This initiative appears very timely, considering the results of a suit filed against a non-Federal audit firm alleging, among other things, negligence in the performance of non-Federal audits. A summary of the results of this lawsuit is provided in Abstract 1, "Significant Audits and Audit-related Activities."
Examples of OIG Effectiveness in Postsecondary EducationIn the student aid area, our focus continues to be on the Department's implementation of the William D. Ford Federal Direct Loan program. This program continues to generate enormous activity by management and intense Congressional interest. While circumstances warrant that the Direct Loan program continue to be an audit priority, we recognize the need to also focus our work on the Federal Family Education Loan (FFEL) program and the Pell Grant program, both large-dollar student financial assistance programs susceptible to fraud, waste and abuse due to poor program design and decentralized administration. Debt collection activity
This period we issued a series of reports on the Department's debt collection activities one dealing with loan consolidations, others dealing with the effectiveness and efficiency of the Office of Postsecondary Education's Debt Collection Service (DCS) operations. In the loan consolidation report, we assessed the cost-effectiveness of the Department's initiative to target over 800,000 defaulted DCS borrowers' loans for consolidation into the Direct Loan program. Based on information available to us, our assessment concluded that it was not cost-effective to consolidate these loans. Accordingly, we recommended that active pur- suit of additional DCS consolidations be discontinued until a study is performed. Department program managers, while not in total agreement with our report, agreed to implement our recommendations.
Our series of reports assessing the effectiveness and efficiency of DCS operations showed, overall, that DCS's efforts to accomplish its mission were noteworthy. The reports dealt with DCS's internal operations, contract collection agency activities, and areas outside DCS's control.
We recommended steps that DCS could take to improve internal operations; improve the role that contract collection agencies play in DCS's efforts to meet its mission of providing quality customer service and sound credit management to increase net revenue; and improve customer service by emphasizing the need for a long-term, Department-wide collection policy.
Handling FFEL loans held by bankrupt or insolvent institutions
Also this period, we issued a report on lessons learned from the Resolution Trust Corporation's handling of Federal Family Education Loans. Our review concluded that a strategy for responding when institutions participating in the FFEL program become insolvent or bankrupt is needed. We also recommended that further dialogue between ED and the Federal Deposit Insurance Corporation continue with a view toward establishing a mechanism for coordinating and sharing data about these institutions.
Financial Statement AuditsThe Government Management Reform Act (GMRA), passed in 1994, mandates annual audits of agency-wide financial statements for FY 1996 and each year thereafter. In addition, GMRA mandates that consolidated government-wide financial statements be audited as of FY 1997. This period, our efforts were focused on both the required audit of ED financial statements and the development of guidance that will assist Federal agencies and OIGs in the preparation and audit of Department-wide financial statements. These efforts, as well as our concerns regarding the lack of funding that has severely challenged our ability to fulfill the GMRA mandate, are described below.
Government-wide Financial Statements Audit Task Force
The ED/OIG is participating in a government-wide Financial Statements Audit Task Force that is developing guidance for the preparation and audit of the Department-wide financial statements to meet GMRA requirements. The task force includes representatives from OMB, GAO, the Department of the Treasury, and the OIG and Chief Financial Officer (CFO) communities. Our participation is primarily in the areas of single audit reliance, credit reform, and electronic data processing audit requirements.
The objectives of the task force are:
- to provide recommended solutions for government-wide auditing and accounting issues not addressed by the Federal Accounting Standards Advisory Board;
- to provide a forum for assuring consistency of implementation guidance for identified accounting and auditing issues; and
- to assist GAO in developing its government-wide audit plan.
An audit of the FY 1995 Department-wide financial statements is currently being conducted, one year ahead of the GMRA requirement. The audit is being performed by an independent public accountant, with some assistance from the OIG, whose report is expected to be issued by the end of June. This is the first time the Department's operations will have had a financial statement audit.
Some of the challenges facing the Department-wide audit are essentially the same as those encountered in previous CFO audits. They include:
- overcoming antiquated financial management systems in preparing the statements;
- overcoming data reliability issues for financial statement estimates; and
- overcoming weaknesses in the monitoring of schools, lenders, and guaranty agencies.
Lack of funding raises questions on future of Department-wide audit
The GMRA-mandated annual audit of the Department's financial statements presents a substantial challenge to the OIG. We do not have enough staff with sufficient financial audit ex-.pertise to perform the required audit in-house without substantial contractor assistance. Historically, the OIG has not received adequate funding for contracting and we have had to rely upon the Department to pay for major portions of the audits.
Initially, funding for contracting from the Department allowed us to employ IPAs under contract to conduct the audit on behalf of the OIG. Operating under continuing resolutions, however, has hampered ED's ability to fund the FY 1996 Department-wide audit.
We believe that it is more efficient and effective to continue to allow independent public accountants to perform the major portions of the Department-wide audit while maintaining a core competency in financial statement auditing expertise in OIG. A source of funding for this year's financial statement audit is in the process of being determined.
Asset ForfeitureIn our last Semiannual Report, the Acting Inspector General discussed his concerns regarding this Office's lack of legislative authority to share in the proceeds of forfeited assets seized by the government pursuant to judicial orders based on prosecutive actions resulting from our investigations. Since the issuance of that report, we have seen little progress in the situation and remain concerned that our inability to receive an "equitable share" of forfeited proceeds an authority maintained by other Federal, State and local law enforcement agencies has resulted in a de facto denial of funds that, under comparable circumstances, would be available to other investigative agencies.
Lack of authority results in loss of opportunity to share in proceeds
Asset forfeiture is a powerful law enforcement tool that is aimed at taking the profit out of crime. It is particularly appropriate in the context of student aid program fraud cases, because the sole motive of the perpetrators is to enrich themselves at the expense of students and taxpayers.
As noted in our last Semiannual Report, OIG investigators have been responsible for some significant asset seizures in California, Puerto Rico and Texas from trade-school owners who have defrauded the student loan and grant programs. This period we were denied the opportunity to share in the proceeds of $1.2 million that was forfeited by the owner of a Texas truck-driving school who had defrauded the student loan programs. The other Federal law enforcement agency involved admitted that we had performed the lion's share of the work, and that, accordingly, we should receive a substantial portion of the proceeds of the seized assets; but we did not have the statutory authority to receive the money. Moreover, we could not accept reimbursement for our substantial investigative costs related to the case. We have aggressively explored non-legislative options, but our efforts have consistently been frustrated by statutory and bureaucratic obstacles. The Justice Department's asset forfeiture fund was reported to hold some $549.9 million in l994, but we cannot receive any proceeds from this or any other forfeiture fund to.defray the costs of our investigations, except in very limited circumstances..
We again ask the Congress to allow us, as it has State and other government law enforcement agencies, to receive an "equitable share" of asset forfeiture proceeds from our cases. Doing so would not only help provide needed support for our investigative efforts, but would also be in every way the equitable thing to do.
Initiatives Conducted at Congressional RequestThis period, the OIG initiated or completed reviews in response to Congressional requests. These initiatives are discussed below.
Local school districts' use of Drug-Free Schools and Communities Act funds
At the request of the House Subcommittee on National Security, International Affairs and Criminal Justice, we performed a review to determine how local school districts used their Drug-Free Schools and Communities Act (DFSCA) funds. We visited nine school districts and determined how they used their DFSCA funds during FY 1995. The results of our review were presented to the subcommittee and are summarized in Abstract 3, "Initiatives Conducted in Response to Congressional Requests."
Review of Direct Loan and FFEL program administration
At the request of the House Subcommittee on Oversight and Investigations, Committee on Economic and Educational Opportunity, we.are conducting a review of the management systems and structure of the student financial assistance programs. Our review will assess the efficiency, effectiveness and consistent application of the systems and structure with respect to the Direct Loan program and the parallel FFEL program. We plan to complete this review during the next reporting period.
Review of the Office for Civil Rights
As a result of several Congressional requests, the OIG conducted an audit of the Office for Civil Rights' (OCR) complaint evaluation and resolution processes. We found that OCR has made many improvements in its operations. OCR's efforts are ongoing and our recommendations should assist them in contining to improve operations. The results of our review are discussed in detail in Abstract 1, "Significant Audits and Audit-related Activities."