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Financial Highlights | Improper Payments Overview

The Department has undertaken the following initiatives relating to the implementation of the Improper Payments Information Act of 2002.

Student Financial Assistance Programs. The Department's Office of Federal Student Aid (FSA) operates and administers the majority of the Title IV Student Assistance programs authorized by the Higher Education Act of 1965, as amended. Within these programs, we are identifying activities that are susceptible to significant improper payments. We are also reporting estimates of the annual amount of improper program payments and implementing plans to reduce improper payments.

Eligibility for Title IV student aid is determined exclusively through applicant self-reported income, family size, number of dependents in college, and assets. These data are reported through the Free Application for Federal Student Aid (FAFSA), which applicants typically complete prior to the April 15 Internal Revenue Service (IRS) tax filing deadline.

FSA has undertaken a statistical study in which financial data from a random sample of FAFSA submissions are compared to financial data reported to the IRS in annual income tax filings. Analysis of the study indicates that inaccurate reporting of income, family size, number of dependents in college, and assets may be the primary cause of improper payments within the Title IV programs. However, legislation does not currently permit FSA to verify 100 percent of the FAFSA income data with the IRS.

In pursuit of the goals of the Improper Payments Information Act, the Department has been working closely with the Office of Management and Budget to consider other alternatives. We are developing an action plan designed to improve the accuracy of the improper payment estimates and reduce the level of risk and the amount of improper payments in the student financial assistance programs.

Title I Programs

The Department performed a risk assessment of the Elementary and Secondary Education Act Title I Program, parts A, B, and D, during FY 2005. The assessment documented that the risk of improper payments under current statutory requirements is very low. In order to refine the process for assessing risk in the program, the Department implemented a monitoring plan to review all states and territories receiving Title I funds within a three-year review cycle. The first three-year monitoring cycle began in FY 2005, and the Office of the Chief Financial Officer is participating with the Office of Elementary and Secondary Education in the monitoring process to provide technical support regarding fiduciary compliance.

A major fiduciary monitoring element involves the wide use by local educational agencies of the number of children who qualify for free and reduced-price meals to determine an individual school's Title I eligibility and allocation. The Title I statute authorizes a local educational agency to use these data, provided under the U.S. Department of Agriculture (USDA) National School Lunch Program, for this purpose. In many districts, these data are the only indicator of poverty available at the individual school level.

USDA has raised concerns about the reliability of these data. USDA is working with states and localities to improve program integrity, within the existing statutory and regulatory framework, through enhanced monitoring and auditing. USDA is also working with the Department and other federal agencies that have programs that make use of these data to explore longer-term policy options.

Remaining Grant Programs

During FY 2005, the Department instituted a more detailed risk assessment of all other grant programs. We established a memorandum of understanding with the Department of Energy's Oak Ridge National Laboratory which performed data-mining on information available in the Federal Audit Clearinghouse's Single Audit Database, the Department's Grant Administration and Payment System, and the Department's Audit Accountability and Resolution Tracking System. Given scarce resources, we decided to use the results of the thousands of single audits already being performed by independent auditors on grant recipients.

The Department sought to develop a methodology to produce statistically valid improper payment estimates that could be applied uniformly across non-FSA grant programs. This approach establishes a level of quality control for all programs while simultaneously producing a cost-effective measure.

The Department's Office of Inspector General raised concerns following the Oak Ridge study on what constituted a "program." The study's original definition was at a program group level in order to effectively match anticipated outlays as defined in our budget submissions. However, calculating estimated improper payment error rates at that level can effectively mask the potentially higher rates that might exist if "program" is defined to mean the individual program level. For this reason, the Department is considering having Oak Ridge perform the next risk assessment at an individual program level.

Recovery Auditing Progress

To effectively address the risk of improper administrative payments, the Department executed a formal agreement for recovery auditing work on contract payments. All vendor payment transactions made from FY 1998 through FY 2004 were reviewed. Potential recoveries are minimal. FY 2005 payments will be reviewed during FY 2006.

Our purchase and travel card programs remain subject to monthly data-mining to identify potential misuse or abuse.

The Department plans to develop a manager's internal control training program that will focus on controls to eliminate improper payments. This training will help managers use specific criteria to properly assess the risk of improper payments in our programs.

The Department will record and maintain corrective action plans as required. We will configure corrective action plans based on the results of the initiatives outlined above.

To comply with the Improper Payments Information Act of 2002 the Department is focused on identifying and managing the risks of improper payments and is mitigating risk with adequate control activities. By implementing our current and anticipated actions, we will effectively reduce improper payments throughout the Department.

The Other Accompanying Information section of this report contains additional details of the Department's activities related to the reduction of improper payments.