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U.S. Department of Education

Office of Inspector General

Semiannual Report to Congress: No. 46

October 1, 2002 - March 31, 2003

U.S. Department of Education

Rod Paige

Secretary

Office of Inspector General

John P. Higgins, Jr.

Inspector General

Counsel’s Office

Mary Mitchelson

Counsel to the Inspector General

May 2

003

This report is in the public domain. Authorization to reproduce it in whole or in part is granted. While permission to reprint this publication is not necessary, the citation should be: U.S. Department of Education, Office of Inspector General, Counsel’s Office,

Semiannual Report to Congress, No. 46

,Washington, DC 20202.

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U.S. Department of Education

Office of Inspector General

Semiannual Report to Congress: No. 46

October 1, 2002 - March 31, 2003

April 30, 2003Dear Mr. Secretary:I am pleased to submit to you, in accordance with the Inspector General Act of 1978 (Public Law95-452, as amended, section 5(b)), this semiannual report on the activities of the Department’sOffice of Inspector General for the six-month period ending March 31, 2003.Ensuring equal access to quality education is a top priority of our nation and the central missionof the Department. You have set the Department on a course of excellence in financialmanagement, program delivery, and operations to meet this fundamental goal. Our audits,

investigations, and inspections support this goal by providing independent and objective analysisto identify shortcomings and make recommendations for improvements.We look forward to continuing our work with you on the challenges facing the Department. Asthis report evidences, our work focuses on our shared goal of achieving and maintainingaccountability throughout the Department.The Inspector General Act requires you to transmit this report within 30 days to the appropriatecongressional committees and subcommittees, together with a report containing any commentsyou wish to make. Your report should also include the statistical tables specified in section5(b)(2) and (3), and a statement with respect to audit reports on which management decisionshave been made, but final action has not been taken, as specified in section 5(b)(4).Sincerely,John P. Higgins, Jr.Enclosure

400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510

Our mission is to ensure equal access to education and to promote educational excellence throughout the nation.

UNITED STATES DEPARTMENT OF EDUCATION

OFFICE OF INSPECTOR GENERAL

THE INSPECTOR GENERAL

INSPECTOR GENERAL’SMESSAGE TO CONGRESS

We are pleased to provide this semiannual report on the accomplishments of the Office of Inspector General (OIG), U.S. Department of Education (Department), from October 1, 2002through March 31, 2003. During this period, we issued 55 audit and inspection reports andmemoranda and closed 120 investigations. We also testified before Congress on improvements inthe Department’s financial management.Our work demonstrates OIG’s commitment to assist the Department in its implementation of thePresident’s Management Agenda and in resolution of its major management challenges. Wedirected significant resources to the Agenda’s goal to eliminate fraud and error in studentfinancial aid programs. We continue to find that applicants, school and administrative officials,and others attempt to obtain funds from these programs illegally. We recently completed ananalysis to help the Department identify critical risks based on our extensive experience in studentfinancial aid programs. We recommended controls to safeguard these programs and help theDepartment meet its objective to remove them from the General Accounting Office’s high-risk list.We also focused attention on the Department’s financial management, budget and performanceintegration, and expanded electronic government to advance its efforts in meeting other items onthe President’s Management Agenda. For example, we examined challenges to the timely andaccurate preparation of the Department’s financial statements, compliance with fundingrequirements for certain elementary and secondary programs, and protection of criticalinfrastructure, including information technology. We made significant recommendations in theseareas providing valuable guidance for the Department to improve the integrity, effectiveness, andefficiency of its programs and operations.This is our first semiannual report since my Senate confirmation on November 14, 2002. Mysenior staff and I, together with all OIG, look forward to continued partnership with the Secretaryand Congress in our common goal of a Department of Education that delivers programs andservices for the nation’s students with the highest standards of excellence and accountability.

John P. Higgins, Jr. Inspector General

Contents

MESSAGE TO CONGRESSACTIVITIES AND ACCOMPLISHMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1PMA Goal: Improved Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Financial Statement Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Testimony on Financial Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Financial Integrity Investigations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

PMA Goal: Budget and Performance Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Compliance with IDEA Funding Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2Migrant Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Continued Non-Compliance by High-Risk Pacific outlying areas Grantees . . . . . . . . . . . . . . 3Controls over Equipment in the Virgin Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Talent Search Program at Luther College . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Fraud against Elementary and Secondary Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

PMA Goal: Expanded Electronic Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Critical Infrastructure Protection Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Network Intrusion (Hacking) Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

PMA Goal: Elimination of Fraud and Error in Student Aid Programs . . . . . . . . . . . . . . . . 5

Fraud by Administrative and School Officials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Fraud by Student Aid Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Fraud by Students. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Inconsistent and inaccurate Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Improper Use of Reserve Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Strengthening Accreditation Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Measuring Contractor Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Nonfederal Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Reporting Requirements (P.L. 95-452) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Table 1:

Recommendations Described in Previous Semiannual Reports on Which CorrectiveAction Has Not Been Completed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Table 2:

ED/OIG Audit Services Reports on Education Department Programs and Activities(October 1, 2002 to March 31, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Table 3:

Other ED/OIG Reports on Education Department Programs and Activities(October 1, 2002 to March 31, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Table 4:

Inspector General Issued Audit Reports with Questioned Costs . . . . . . . . . . . . . . . . . 16

Table 5:

Inspector General Issued Audit Reports with Recommendations for Better Use of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Table 6:

Unresolved Reports Issued Prior to October 1, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Table 7:

Investigation Services Cumulative Actions (October 1, 2002 to March 31, 2003) . . . 21

Table 8:

Statistical Profile: October 1, 2002 to March 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . 27

1

Activities and Accomplishments

The Office of Inspector General (OIG) for the period October 1, 2002 through March 31,2003, continued its work to improve the programs and operations of the Department of Education (Department) and to protect their integrity. We emphasized work to assist theDepartment in meeting the mandates of the President’s Management Agenda (PMA) and

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