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OIG Semiannual Report to Congress, No. 31
Inspector General's Message to Congress

The mission of the Office of Inspector General (OIG) is to promote the efficient and effective use of taxpayer dollars in support of American education. This Office takes justifiable pride in a record of accomplishment written in billions of taxpayer dollars recommended for recovery or better use since the inception of our Office in May 1980, and in programmatic and administrative improvements that have helped Education Department (ED) programs work better and at less cost.

The last several months have brought new challenges to the government as a whole, and to the Department of Education and the Office of Inspector General in particular. During this semiannual reporting period, we have made major changes in both work processes and organizational structure. These actions have been necessary accommodations to the profound changes in management philosophy and practice that have commanded the attention of managers throughout government, notably that of Offices of Inspector General; and to fiscal constraints and uncertainties that have forced us to reevaluate the ways in which we can best direct limited resources.

The Changing Nature of Our Work

We have responded to the challenges presented by changes in management theory and practice by experimenting with new approaches to our work that reflect a renewed commitment to the best in teamwork and customer service. Examples of our efforts this period follow.

Cooperative initiatives with other ED offices

The OIG is currently working on a series of audits that are intended to assist Department managers and Congress in the upcoming reauthorization of the Rehabilitation Act. These audits were developed collaboratively with program officials during a comprehensive program survey.

In conducting the survey, we interviewed representatives of consumer advocacy groups, officials of State agencies and clients, and Congressional staff. OIG staff believe that their ability to work closely with program officials and other interested parties has enabled them to gain valuable insights that will assist them in developing the most useful information and recommendations for the reauthorization.

During the implementation of direct lending, the Department has sought to protect the interest of students and taxpayers as the volume of Federal Family Education Loan program (FFEL) loans diminishes, and the role of guaranty agencies changes. OIG staff have worked and continue to work on teams with Departmental personnel to assess the condition of the guaranty agencies and to assure the protection of approximately $1.7 billion of Federal reserve funds the agencies hold.

This period a new, streamlined approach, developed in cooperation with the Depart- ment, was implemented for reviewing and processing non-Federal audit reports. Effective July 1, 1995, most non-Federal audit reports are being sent directly to the Department (or its designate) by grantees. This new approach results in program officials receiving the reports sooner, thus enabling more timely action on the reports.

The OIG's investigative staff has also participated in cooperative efforts with other ED offices to help improve the quality of Department programs and operations. This period, OIG investigators met with colleagues from the Department's Office for Civil Rights (OCR) to discuss ways of improving OCR's investigative process to assure the quality of OCR reviews and the comprehensiveness of OCR investigations. We will continue to be available for advice and assistance as this initiative progresses and expect that this cooperative endeavor will be of value to OIG as well as to OCR.

Cooperative audit resolution

With the passage of the Goals 2000: Educate America Act, the Improving America's Schools Act, and the School-to-Work Opportunities Act, the Department will be overseeing programs that provide for greater flexibility and autonomy than in the past. Unresolved audit findings based on noncompliance with more restrictive legislation may hamper the ability of grantees to take full advantage of this increased flexibility.

Because building effective partnerships is critical to effective audit resolution and fun damental to improving education for the nation's students, we are working closely with the Department and States to consider alternative approaches to resolving audits in a more efficient and effective manner and rethinking how audit oversight can work better to help solve recurring problems. These efforts have resulted in the Cooperative Audit Resolution and Oversight Initiative.

Under this initiative, the Department, with significant participation by State and local education agencies, is currently redesigning its audit, monitoring and technical assistance processes. The OIG, in conjunction with other Department offices and State and local officials, plans to complete a major revision of the "Compliance Supplement for Education Programs" (used by non-Federal auditors when conducting comprehensive financial and compliance audits, known as single audits), and to conduct training sessions for program officials and non-Federal auditors, by spring 1996. The OIG, together with the Department, has discussed with the Office of Management and Budget (OMB) the possibility of expanding the initiative's concepts to other Federal agencies whose customers are State and local agencies.

Other cooperative efforts with the audit and education communities

Because single audits, conducted under the Single Audit Act and OMB circulars, are an important part of the Department's monitoring system, the OIG has worked collaboratively with the Office of Management and Budget and the General Accounting Office (GAO) in revising OMB guidance and Single Audit Act legislation, respectively. Teams of OIG and Departmental personnel, in collaboration with the audit community, continue to work on audit guidance for student financial aid programs. This period, the program-specific audit guide, "Compliance Audits (Attestation Engagements) of Federal Student Financial Assistance Programs at Participating Institutions," was issued.

Refocusing investigative resources

To obtain the greatest advantage from our limited investigative resources, the OIG has focused its investigative efforts increasingly on complex, high-impact criminal and civil cases. These efforts have resulted in major recoveries, asset forfeitures, settlements and fines against institutions schools, lenders, servicers whose owners and officials are taking taxpayer dollars meant to help students become productive citizens, and using those dollars to unjustly enrich themselves, at the expense of those who are least equipped to deal with the financial and personal costs.

Evolution of a New Organizational Structure

In seeking ways to most effectively implement these new approaches, OIG managers and staff developed a reorganization plan that makes optimum use of personnel and budgetary resources. The plan established an organizational structure that completely redefines reporting relationships. Once an organization with numerous levels of supervisory review and more than 20 regional and headquarters offices (a structure common to many Federal agencies), the OIG is moving purposefully toward a "flattened" management structure of four multi-State areas in which staff will operate in teams that will report to an area management team. In addition to reducing administrative layers, this organizational design uses teams in order to fully utilize the diverse skills and strengths of OIG staff members.

Examples of OIG Effectiveness

We have already begun to see the fruits of these dynamic changes in both the nature of our work and our organizational structure, as described in the preceding pages. Examples are set forth below.

Investigative results

In the last year, three investigations involving a truck-driver training school in Texas, a Boston trade school official, and the owner of a business college in Puerto Rico resulted in a total of more than $2.4 million dollars in criminal and civil seizures. Another case, involving a training corporation in Florida, resulted this period in summary judgments totaling $13 million.

In addition to sentencings, restitutions and forfeitures, schools whose owners have been convicted of defrauding the student aid programs have in many cases closed to the benefit of taxpayers, students, and the financial integrity of the programs.

Audit results

In audit, our focus on providing timely, critical advice to address high-risk, highpriority areas yielded recommendations for improved financial systems, ideas for revamped gatekeeping (the process through which the Department determines the suitability of schools to participate in the student aid programs), and safeguards to minimize potential monetary losses.

This period we successfully completed the transition of responsibility for auditing the FFEL program's financial statements from the GAO to the OIG by completing the fiscal year 1994 audit. (The two prior audits had been performed jointly with GAO or by.GAO with OIG assistance.) Our current audit reported that continued improvements are necessary to ensure that the financial statements and other management reports are reliable.

The gatekeeping process is crucial to the Department's student aid program adminis- tration because schools that make it through the screening process then have annual access, collectively, to billions of dollars in Federal grants and loans. If problem schools can be prevented from gaining access to the programs and funds, significant fraud and abuse can be avoided.

In the gatekeeping area, we recommended a risk-based approach to school recertification to help the Department meet an impending statutory deadline for recertifying all 8,200 institutions that have access to Federal grants and loans. Because the activities of accrediting agencies are a key gatekeeping component, our review of selected agencies' performance-based systems recommended improved Departmental oversight to assure that the required standard setting and measurement spur improvements in educational quality.

Our observations on the design of the PLUS Loan program led to the conclusions that legislative changes in 1992 extending repayment periods and removing fixed dollar limits will lead to higher loan losses and be very costly to the Department and taxpayers. We found that some parents borrowed from $40,000 to $100,000 during 1994 and that, with more than one child in college, parents could easily accumulate a debt of more than $200,000. Our recommendations focused on adding safeguards without unduly restricting student access.

In the area of elementary and secondary education, our recommendations to the Department for modifying the Impact Aid application process were designed to reduce the thousands of hours spent on child counts by parents, school district personnel, and ED employees.

Challenges to OIG Effectiveness

These successes are threatened by budgetary reductions on the one hand and increased responsibilities on the other. This period, confronted with the grim possibility of expected Congressional action to fund the Department at less than 1995 levels, we learned that OIG will have to absorb the full cost of law enforcement availability pay in FY 1996, as well as the government-wide two-percent-plus pay raise and the Department-wide audit requirement of the Government Management Reform Act of 1994, for which we have not received additional funding. These unfunded mandates imperil the efficacy, indeed the viability, of OIG efforts to prevent and detect fraud, waste and abuse across a broad spectrum of ED programs and operations.

Asset forfeiture: an untapped source

Program fraud is about financial gain, and perpetrators of fraud against the Federal student aid programs invariably use the funds illegally obtained through their schemes to purchase real estate, cars, boats, jewelry, and other personal assets. Recognizing the potential to recoup these ill-gotten gains, we have begun using asset forfeiture laws in the investigation and prosecution of our cases, with excellent results, as the examples summarized on the previous page (and described in greater detail in the "Significant Prosecutive Actions" section of this and our previous Semiannual Report) demonstrate.

While we have had considerable success in using asset forfeiture laws to effect the return of fraudulently obtained assets to the government, the OIG, in contrast to a number of Federal, State and local investigative agencies, cannot share in the proceeds from such forfeited assets.

Under current law, the Departments of Justice and the Treasury and the U.S. Postal Service have asset forfeiture authority under which they forfeit, manage and dispose of assets, with the proceeds of these dispositions going into the agencies' respective asset forfeiture funds. Current law also authorizes these agencies to give a share of the forfeited proceeds to other Federal law enforcement agencies that have the authority to receive them, as well as to State and local investigative agencies that participated in the particular case that resulted in the forfeiture. The share that each investigative agency receives is based on the amount of investigative effort expended by the agency on the case, and is referred to as the agency's "equitable share."

Because we do not have the authority under current law to receive an equitable share of forfeited proceeds, the OIG is in a less advantageous position than a similarly situated State agency, which could and usually does receive an equitable share. Particularly in these difficult and uncertain times, having the authority to receive an equitable share would allow the OIG to continue to work these cases effectively, and help take the profit out of the crimes committed against ED programs.

Challenges Facing the Department of Education

In a paper prepared this period for the Subcommittee on Human Resources and Intergovernmental Relations of the House Committee on Governmental Reform and Oversight, the OIG identified what we found, based on our extensive experience, to be the three most significant problems facing the Department. These are: 1) the absence of performance standards for ED programs and operations; 2) weaknesses in the design and operation of the Department's student financial assistance programs; and 3) weaknesses in Departmental financial management systems.

The Department has initiated efforts through its strategic planning process to address the lack of program performance standards, but the absence of clear performance expectations in some program statutes makes this process difficult at best. Although the Department has taken corrective action in many other areas, our suggestions, for various reasons, have not always led to adoption of the needed corrective measures. The OIG has suggested legislative, programmatic and administrative changes to address these problems.

We will continue to press for needed changes in laws and regulations and, where appropriate, in the performance of program participants, to enhance the effectiveness of Department programs and to protect taxpayer dollars and the students who depend on the programs they fund from fraud, waste and abuse. To achieve these goals, we will be relying upon the cooperation, assistance and good faith of our legislative and executive colleagues. The OIG looks forward to working with you in the coming months, as we seek to achieve resolution of these and other issues of significant concern to the nation's students and taxpayers.

John P. Higgins, Jr.
Acting Inspector General

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Last Modified: 02/24/2005