Significant Findings and Recommendations Disclosed in OIG-issued Audit Reports (April 1, 1995 September 30, 1995) Student Financial Assistance Programs "Managing for Results: Review of Performance-Based Systems at Selected Accrediting Agencies" ACN 06-30004 May 8, 1995 We reviewed five of the agencies that accredit schools offering postsecondary vocational training. We found that the agencies were generally not using performance measures to effectively assess and improve the quality of education offered by member schools. While the agencies encouraged schools to evaluate the effectiveness of their programs, only one of the agencies had quantified a minimum performance standard, and none of the agencies adequately verified performance data reported by member schools. The agencies expressed a reluctance to use performance data to assess the effectiveness of schools' job training programs, saying that they do not view their role as that of government regulators. Several agencies suggested that the Department, rather than numerous accrediting agencies, define the outcome measures and establish performance standards for Title IV-funded job training. The Higher Education Act and recent regulations require accrediting agencies to develop performance measurement systems. We recommended that the Department: 1) evaluate accrediting agencies' standards and procedures for measuring success with respect to student achievement; and 2) develop a process to collect and compile the reported performance data from accrediting agencies in order to determine the overall success of Title IV-funded job training. "Report on the Transitional Guaranty Agency's Role in Guaranty Agency Transition Strategy" ACN 05-40007 June 2, 1995 As part of its effort to ensure a smooth transition from the Federal Family Education Loan program to the Federal Direct Student Loan program, the Department entered into agreements with the Transitional Guaranty Agency (TGA). The agreements provide for the TGA to perform service functions, provide backup guaranty capacity, and serve as a guarantor of last resort if needed. ED's intent is for the TGA to serve as a "safety net" and not to compete with other guaranty agencies. We recommended that, in order to make decisions regarding the TGA that are both cost effective and cost efficient, the Department act to reduce its need for the TGA as an alternative "safety net" by soliciting merger proposals and requiring early portfolio reconciliations. We also recommended that ED utilize performance measures to assess whether there is a continuing need for the TGA and encourage the TGA to minimize costs. "The Department Should Consider State Workforce Development Initiatives in Its Efforts to Reform Title IV-Funded Job Training" ACN 06-40007 August 22, 1995 We initiated this audit to determine if selected States had effective workforce development strategies that should be considered by the Department, and whether the Department should use these strategies to improve the results of Title IV vocational training. Our review disclosed that some States have made significant progress in developing strategies for coordinating and measuring the effectiveness of their job training programs. Title IV funding, on the other hand, is focused on the enrollment of students in vocational training programs, rather than on whether the students get quality jobs. A State official expressed concern that the Title IV funding system was at odds with State efforts to train for jobs in demand. In the interest of promoting coordination of Departmental and State efforts in this area, we recommended that the Department study the feasibility of conducting a pilot project in one or more of those States with advanced workforce development programs. Department officials pointed out, and we agree, that since legislative changes to reform worker training programs are now before Congress, it would be premature to conduct pilot programs at this time. However, if changes are not passed, such pilots could provide useful information for subsequent legislative change efforts. Instituto Educacion Universal Rio Piedras, Puerto Rico ACN 02-40075 September 25, 1995 Our audit at Instituto Educacion Universal (IEU) disclosed deficiencies in IEU's computation of clock hours and its cash management system. We found that IEU overstated the total clock hours of instruction offered to students and made an estimated $3,854,700 in Pell Grant overawards to students during the award years 1991-92 through 1993-94. We also found that IEU requested Federal funds in excess of immediate disbursement needs (the average monthly excess cash balance from July 1, 1991 through June 30, 1994, was $1,367,577) and used those funds for general operating purposes, primarily to meet payroll costs. Among our recommendations were that IEU refund to ED the Pell Grant overawards made to students during award years 1991 92 through 1993 94, and pay imputed interest of $211,917 for the period July 1, 1991 through June 30, 1994. "Review of the Sources and Uses of Federal Reserve Funds by United Student Aid Funds, Inc., Fishers, Indiana" Fishers, Indiana ACN 05-40006 September 1, 1995 Our review determined that United Student Aid Funds, Inc. (USA Funds) had improperly charged marketing costs associated with USA Funds' "Help America Learn" program to the FFEL program reserves account. USA Funds is a private, non-profit organization located in Fishers, Indiana, that serves as the designated guaranty agency for several States and certain territories. At the exit conference, officials of USA Group (USA Funds' parent corporation) agreed to restore the funds used to pay Help America Learn's marketing costs, which they calculated to be $1,762,868 back to the 1986 program year. Officials subsequently provided documentation showing that they had adjusted Part E of the corporation's 1130 Report (the document that annually reports cumulative sources and uses of FFEL program reserves) for the quarter ending September 30, 1994. Elementary, Secondary and Other Education Programs "The Department Should Evaluate the Need for Annual Child Counts in the Impact Aid Program" ACN 09-38259 September 12, 1995 School districts that want to receive Impact Aid funds must submit an application each year, reporting the number of federally connected children in their schools. The Department allocates Impact Aid funds to the school districts on the basis of these child counts, which are time consuming for parents (estimated at 180,000 hours per year), school district personnel (estimated at an average of 300 hours per district each year) and Department employees (22 percent of the Office of Elementary and Secondary Education's salary and operating expenses). We found that annual child counts may not be necessary because the child counts generally remain stable from year to year. If the child counts are required less often, the amount of time devoted to this application process could be significantly reduced. We recommended that the Assistant Secretary for Elementary and Secondary Education consider: 1) requiring school districts to submit applications on a less frequent basis (multi-year applications); 2) allowing school districts to submit new child counts when they experience increases in federally connected children that exceed a specified threshold; and 3) staggering the receipt of applications so that all applications will not be processed in the same year. Department officials did not agree with our recommendations. They expressed serious concerns about making the child counts less frequently. We recognize that they raise valid issues that must be considered carefully before making any decisions on this matter. We plan to work with Department officials to resolve these issues. "New York State Needs to Strengthen Its Least Restrictive Environment Policies, Procedures and Controls" Albany, New York ACN 02-40200 September 27, 1995 Our review confirmed the findings of successive ED program reviews as well as reviews and audits by others regarding New York's longstanding record of noncompliance with the Individuals With Disabilities Education Act (IDEA, Part B). We found that: 1) Statistical information on special education reported by New York State to ED has not always been accurate and reliable. Significant costs are incurred to collect this data; however, the State has not provided adequate guidance to the Board of Education of the City of New York (BOE) and has not effectively monitored BOE to assure that the data is accurately reported. 2) New York State needs to establish measures of success and timely goals for special education, and specifically for the placement of students in Least Restrictive Environment (LRE). Furthermore, the State's policies and its allocation of State funds do not support needed services in LRE. In our opinion, the above conditions raise doubts as to whether New York State is properly educating its disabled students in the LRE and achieving successful results for the funds expended. The State disagreed with our audit findings and recommendations. "The New York State Office of Vocational and Educational Services for Individuals with Disabilities Must Improve Its Controls Over Procurement of Training Services and Durable Medical Equipment" Albany, New York ACN 01-40252 September 29, 1995 The New York State Education Department's Office of Vocational and Educational Services for Individuals with Disabilities (VESID) could save an estimated $3.6 million in annual training expenditures ($2.2 million in Federal funds) by improving controls over the procurement of training services. VESID failed to reduce funding for clients who secured student loans or who had previously defaulted on student loans. Additionally, grants available from other sources were not always obtained. We recommended that the Commissioner of ED's Rehabilitation Services Administration: 1) Require VESID to develop and implement policies and procedures for procurement of training services at vocational and business schools; 2) Encourage VESID to negotiate a Memorandum of Understanding with the State Association of Financial Aid Administrators, to provide for equal access to campus-based funding by VESID clients; and 3) Require VESID to develop and implement a standard document for schools to complete that will identify comparable benefits, funding secured from other sources, and prior student loan defaults. "The Migrant Student Record Transfer System: Will Its Demise Impact Educators' Services to Migrant Children? and Is There a Future Role for the Department in Assisting States in Their Development of Alternative Record Transfer Systems?" ACN 09-40214 August 4, 1995 In the recent reauthorization of the Title I of the Elementary and Secondary Education Act, Congress no longer set aside Federal funds for a contract to operate the Migrant Student Record Transfer System (MSRTS), a national system for transferring migrant student records among State and local educational agencies. In anticipation of the elimination of MSRTS, the OIG solicited information and comments from State and local educators to assess the impact that the demise of MSRTS may have on educational services to migrant children. Based on their responses, we concluded that the MSRTS's demise will have minimal impact on educational services provided to migrant students because school educators often rely on their own student assessments and former schools' records to determine migrant students' appropriate placement and needed services. When educators did use MSRTS, frequently they experienced delays in receiving information and were concerned about the accuracy of data. The Office of Migrant Education (OME) used the information we provided in preparing its report to Congress entitled, "Records Transfer and the Allocation of Migrant Education Program Funds." In addition, the copies of our report were provided to the 35 members of the joint OME/NCES Records Exchange Task Force for background information as the Task Force develops a vision of how migrant and other mobile students could benefit from electronic records exchange systems. "Helping to Assure Equalized Educational Opportunities with HEA, Title III Institutional Aid Funds Global Performance Measures Needed" Washington, D.C. ACN 04-40100 August 28, 1995 The Title III Institutional Aid program provides financial assistance to institutions that enroll large proportions of disadvantaged students. Part of our review focused on whether the program is achieving intended results. Our report recommends that ED: 1) concisely define specific, measurable goals to indicate overall achievement of the Title III program purpose of "equalized educational opportunity"; 2) develop performance indicators and implement performance assessment procedures; and 3) refine Title III program processes. Implementation of the recommendations will be responsive to the 1993 National Performance Review and assure compliance with the Government Performance and Results Act of 1993. The other part of our review focused on oversight of the program to ensure accountability. The report on this part of our review is planned for release in the next reporting period. Michigan Department of Education* Lansing, Michigan ACN 05-53009 August 3, 1995 This financial audit, including provisions of the Single Audit Act, for the period October 1, 1991 through September 30, 1993, was conducted by Thomas H. McTavish, CPA, Auditor General. The auditor determined that the Michigan Department of Education's management did not provide appropriate oversight controls to ensure that Federal assistance programs were managed in accordance with Federal laws and regulations. The auditor questioned costs of $2,115,378. Illinois Department of Rehabilitation Services* Springfield, Illinois ACN 05-53012 September 7, 1995 This financial and compliance audit for the years ending June 30, 1994 and 1993, was conducted by Deloitte & Touche, LLP. The auditor found that expenditures, including personnel costs, had been charged to the Federal Rehabilitation Services Basic Support Program instead of being funded through a State revenue appropriation. The auditor questioned costs of $5,016,685. * non-Federal audit Departmental Management "Financial Statement Audit U.S. Department of Education Federal Family Education Loan Program for the Years Ending September 30, 1994 and September 30, 1993" ACN 17-40302 May 31, 1995 The auditors' report indicated that they were unable to express an opinion on the principal financial statements, taken as a whole, for the fiscal years ending September 30, 1994 and September 30, 1993 because of unreliable student loan data. We determined through detailed procedures that the statements of cash flows did state fairly the cash actually received and disbursed by the FFEL program. Our report on the Internal Control Structure disclosed three material weaknesses in internal controls. These weaknesses follow. 1) Unreliable loan data continues to prevent ED from reasonably estimating FFEL program costs. 2) Controls are not in place to verify that billing reports submitted by guaranty agencies and lenders are reasonable. 3) The financial reporting process does not ensure that financial statements and other management reports are reliable. The report provided recommendations for improving controls over cash reconciliation, loan receivables and other areas. The report on Compliance with Laws and Regulations disclosed no instances of non-compliance. "Follow-up Review on Selected Gatekeeping Operations" ACN 11-40001 September 28, 1995 Because of OPE's reported corrective actions on our gatekeeping audit reports issued between 1989 and 1991, and the expanded authority under the Higher Education Act of 1992, we conducted follow-up work to determine the extent to which OPE had implemented our past recommendations and how effective the corrective actions had been. We concluded that OPE had taken corrective action on many of the recommendations, and improvements were evident in the gatekeeping process. There are, however, three areas that merit closer attention. They are: 1) Recertification of schools. While the number of recertifications OPE reported as completed in the two months following the close of our fieldwork represented an eightfold increase in staff productivity, without further analysis, we could not provide any assessment on how comprehensive the reviews were or if the staff will be able to sustain the dramatic increase in productivity long enough to meet the July 1997 statutory deadline. We recommended that for each round of recertification reviews, OPE first prioritize the selection of institutions that have the highest risk and then, after completing the high-risk recertifications, consider developing a streamlined method of reviewing the remaining recertifications. 2) Accrediting agency information. We found that accurate and timely accrediting agency data was not available for the staff responsible for gatekeeping. OPE agreed that changes were needed in the way accrediting agency data was processed, but disagreed with our recommendations for corrective action. We addressed OPE's objections and asked that they reconsider our recommendations. 3) Missing files. While OPE had upgraded their file maintenance, they still needed to implement tighter controls over file circulation. OPE agreed that this issue remains problematic and stated that it plans to convert current files to an electronic format. "Closed Schools: $2.4 Billion Unaudited" ACN 07-48051 September 26, 1995 We found that close-out audits reporting on the use of approximately $2.4 billion in student aid funds were not submitted to the Office of Postsecondary Education (OPE) as required. This occurred because: 1) the means to effectively enforce the audit requirement do not exist; 2) OPE's focus is directed toward teach-out, loan discharge and other activities for students, with little emphasis on the financial accountability for Federal taxpayer funds when schools close; and 3) the collection and flow of data concerning school closures and troubled schools is fragmented throughout OPE. We recommended that OPE establish additional control procedures to overcome the factors hampering the flow of close-out audits and related information. Although OPE officials did not agree with all of our findings or the causes that we attributed to them, they generally concurred with the recommendations set out in our report. "Annual Interest Grants: Improving the Process for Paying the Remaining Grants" ACN 17-30305 September 28, 1995 We audited the Annual Interest Grant (AIG) program to determine if adequate controls existed to ensure that fiscal year 1994 annual interest grant payments were appropriate. The AIG program was designed to assist institutions of higher education in reducing the cost of borrowing from non-Federal sources for building projects by subsidizing the interest they would have to pay to lenders. Although the program was repealed by the Higher Education Act Amendments of 1992, grant payments will be made through FY 2013. Our audit disclosed internal control weaknesses which adversely affected the Department's ability to administer the program. These weaknesses resulted in overpayments to grantees of approximately $600,000 in FY 1994. ED has recovered this amount. The actions taken by the Department on our recommendations have resulted in the reduction of future grant payments of about $4.4 million. "Indirect Cost Rate Proposal Audit Pelavin Associates, Inc. and Chesapeake Institute for the Year Ended September 30, 1993" Washington, D.C. ACN 03-40450 June 22, 1995 We did an audit of the indirect cost rate proposals submitted by Pelavin Associates, Inc. (PA), and Chesapeake Institute (CI) for the year ending September 30, 1993. Our review found that PA and CI's fringe benefit, overhead and general and administrative indirect cost rates were overstated due to almost $182,000 of excessive and/or unallowable costs being included in their calculation. Among the costs we considered unallowable were $14,273 for a Christmas party; $12,039 for a 10th anniversary party; and $2,637 for tickets for professional basketball games and the opera. By application of the indirect cost rates to direct costs charged to ED contracts, a significant portion of such costs would have been passed on to the taxpayers, if not detected by the audit. Field Pricing Support Reviews or Preawards During this period, the OIG performed 28 field pricing support reviews or preaward reviews of contract proposals. Our reviews covered proposals totalling $1.3 billion in Department contracts for financial management systems software, evaluation services and statistical services. The work was performed to assist the Department's Grants and Contracts Service (GCS) in negotiating contracts; the scope of each review was defined on a case-by-case basis to conform to the precise needs of GCS. In general, the reviews included determining whether costs proposed by prospective contractors are reasonable, allowable and allocable as set forth under the Department's cost principles and evaluating the prospective contractor's accounting system. During this period, these reviews identified unsupported costs caused by excessive labor rates, escalation factors and consultant fees. Because a vendor's cost/price proposal may be revised one or more times before award of the contract, the OIG does not track the unsupported cost identified in these reviews.