Education Financial Management
Weak Internal Controls Led to Instances of Fraud and Other Improper Payments Gao ID: GAO-02-513T April 10, 2002The Department of Education has a history of financial management problems, including serious internal control weaknesses, that have affected the Department's ability to provide reliable financial information on its operations. GAO found that significant internal control weaknesses in payment processes and poor physical control over its computer assets led to fraud, improper payments, and lost assets. GAO also identified instances of grant and loan fraud and pervasive control breakdowns and improper payments in other areas, particularly involving purchasing cards.
GAO-02-513T, Education Financial Management: Weak Internal Controls Led to Instances of Fraud and Other Improper Payments
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United States General Accounting Office: GAO:
Testimony:
Before the Subcommittee on Select Education, Committee on Education and
the Workforce, House of Representatives:
For Release on Delivery:
Expected at 2 p.m.
Wednesday, April 10, 2002:
Education Financial Management:
Weak Internal Controls Led to Instances of Fraud and Other Improper
Payments:
Statement of Linda Calbom:
Director, Financial Management and Assurance:
GAO-02-513T:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the final results of our
review of the Department of Education‘s disbursement processes and how
significant internal control weaknesses led to instances of fraud and
other improper payments. My testimony summarizes our report being
released today,[Footnote 1] which discusses the internal control
problems we found at Education, the resultant improper payments, and
recommendations for strengthening internal controls over disbursements.
As we discussed in our two testimonies before this subcommittee last
year,[Footnote 2] the Department of Education has a history of
financial management problems, including serious internal control
weaknesses. These weaknesses have affected Education‘s ability to
provide reliable financial information to decisionmakers both inside
and outside the agency and to maintain the financial integrity of its
operations. We and Education‘s Office of Inspector General (OIG) have
issued many reports over the last several years on the financial
challenges facing the department and the need to eliminate internal
control weaknesses to reduce the potential for fraud, waste, abuse, and
mismanagement.[Footnote 3] In addition, since 1990, we have designated
Education‘s student financial assistance programs as a high-risk area
for fraud, waste, abuse, and mismanagement.[Footnote 4] Given the
billions of dollars in payments made by Education each year and the
risk of erroneous or fraudulent payments making their way through
Education‘s processes without prevention or detection, you requested
that we audit selected department accounts that may be particularly
susceptible to improper payments.
In response to your request, we assessed internal controls over
Education‘s processes for (1) disbursing grants and loans, (2) paying
for purchases with third party drafts, and (3) use of government
purchase cards, and determined whether any fraudulent or otherwise
improper payments were made in these areas. Our review covered the
period May 1998 through September 2000 during which time Education
disbursed $181.5 billion through these processes”$181.4 billion in
grants[Footnote 5] and loans, $55 million in third party drafts, and
$22 million in purchase card transactions. While we identified some
fraudulent and improper payments, our work was not designed to identify
all fraudulent or otherwise improper payments made by the department.
In addition, we assessed Education‘s physical controls over its
computer equipment. We also assessed the effectiveness of changes to
Education‘s process for purchase card purchases, which took effect in
July 2001 following our prior testimony before this subcommittee. Our
work built upon earlier work done by Education‘s OIG in which the OIG
identified weaknesses in the department‘s third party draft and
purchase card processes.
To summarize, we found that significant internal control weaknesses in
Education‘s payment processes and poor physical control over its
computer assets made the department vulnerable to and in some cases
resulted in fraud, improper payments, and lost assets. We identified
several instances of fraud in the grant and loan areas and pervasive
control breakdowns and improper payments in other areas, particularly
involving purchase cards. Further, because of the risks we identified
in the third party draft process, Education eliminated their use. My
testimony today discusses our findings in each of these areas, as well
as some of the actions Education has taken to address the problems we
identified.
Controls over Grants Disbursement Process Failed to Detect Certain
Improper Payments:
As we testified in July 2001, controls over grant and loan
disbursements did not include a key edit check or follow-up process
that would help identify schools that were disbursing Pell Grants to
ineligible students. To identify improper payments that may have
resulted from the absence of these controls, we performed tests to
identify students 70 years of age and older because we did not expect
large numbers of older students to be receiving Pell Grants,[Footnote
6] and in 1993, we identified abuses in the Pell Grant program relating
to older students.[Footnote 7] Based on the initial results of our
tests and because of the problems we identified in the past, we
expanded our review of 7 schools that had disproportionately high
numbers of older students to include recipients 50 years of age and
older. We found that 3 schools fraudulently disbursed about $2 million
of Pell Grants to ineligible students, and another school improperly
disbursed about $1.4 million of Pell Grants to ineligible students. We
also identified 31 other schools that had similar disbursement patterns
to those making the payments to ineligible students. These 31 schools
disbursed approximately $1.6 million of Pell Grants to potentially
ineligible students. We provided information on these schools to
Education for follow-up.
Education staff and officials told us that they have performed ad hoc
reviews in the past to identify schools that disbursed Pell Grants to
ineligible students and have recovered some improper payments as a
result. However, Education did not have a formal, systematic process in
place specifically designed to identify schools that may be improperly
disbursing Pell Grants. In September 2001, we issued an interim report
[Footnote 8] in which we recommended that the Secretary of Education
(1) establish appropriate edit checks to identify unusual grant and
loan disbursement patterns and (2) design and implement a formal,
routine process to investigate unusual disbursement patterns identified
by the edit checks.
In our July 2001 testimony, we told you that Education decided to
implement a new edit check, effective beginning with the 2002-2003
school year to identify students who are 85 years of age or older. We
explained that we believed the age limit was too high and would exclude
many potential ineligible students. Education subsequently lowered the
age limit for that edit to 75 years of age or older. If the student‘s
date of birth indicates that he or she is 75 years of age or older, the
system edit will reject the application and the school will not be
authorized to give the student federal education funds until the
student either submits a corrected date of birth or verifies that it is
correct. However, without also looking for unusual patterns and
following up, the edit may not be very effective, other than to correct
data entry errors or confirm older students applying for aid.
Education is also in the process of implementing a new system, called
the Common Origination and Disbursement (COD) system, which is to
become effective starting this month. Education officials told us that
this integrated system will replace the separate systems Education has
used for Pell Grants, direct loans, and other systems containing
information on student aid, and it will integrate with applicant data
in the application processing system. The focus of COD is to improve
program and data integrity. If properly implemented, a byproduct of
this new system should be improved controls over grant and loan
disbursements. According to Education officials, they will be able to
use COD to identify schools with characteristics like those we
identified. However, until there is a mechanism in place to investigate
schools once unusual patterns are identified, Education will continue
to be vulnerable to the types of improper Pell Grant payments we
identified during our review.
We identified over $32 million of other potentially improper grant and
loan payments. Based on supporting documentation provided to us by
Education, we determined that over $21 million of these payments were
proper. However, because Education did not provide adequate supporting
documentation, we were unable to determine the validity of about $12
million of these transactions or conclude on the effectiveness of the
related edit checks. While the amount of improper and potentially
improper grant and loan payments we identified is relatively
insignificant compared to the billions of dollars disbursed for these
programs annually, it represents a control risk that could easily be
exploited to a greater extent.
During our investigation of potentially improper transactions, we found
that two students submitted counterfeit Social Security cards and
fraudulent birth certificates along with their applications for federal
education aid, and they received almost $55,000 in direct loans and
Pell Grants. The U.S. Attorney‘s Office is considering prosecuting
these individuals.
During our tests to determine the effectiveness of Education‘s edit
checks, we also found data errors, such as incorrect social security
numbers (SSN) of borrowers, in the Loan Origination System (LOS), which
processes all loan origination data received from schools. Such errors
could negatively affect the collection of student loans because without
correct identifying information, Education may not be able to locate
and collect from borrowers when their loans become due. We reviewed
data for more than 1,600 loans and determined that for almost 500 of
these loans, the borrowers‘ SSNs or dates of birth were incorrect in
LOS. During the application process, which is separate from the loan
origination process, corrections to items such as incorrect SSNs are
processed in the Central Processing System (CPS); however, these
corrections are not made to data in LOS. The new COD system discussed
earlier may alleviate this situation. If this system works as intended,
student data should be consistent among all of the department‘s
systems, including CPS and LOS, because it will automatically share
corrected data. However, until the new system is fully implemented,
errors in LOS could impede loan collection efforts.
Ineffective Controls over Third Party Drafts Led to Their Elimination:
As we testified in April and July 2001, significant internal control
weaknesses over Education‘s process for third party drafts markedly
increased the department‘s vulnerability to improper payments. Although
segregation of duties is one of the most fundamental internal control
concepts, we found that some individuals at Education could control the
entire payment process for third party drafts. We also found that
Education employees circumvented a key computer system application
control designed to prevent duplicate payments. We tested third party
draft transactions and identified $8.9 million of potential improper
payments, $1.7 million of which remain unresolved because Education was
unable to provide us with adequate supporting documentation. Education
has referred the $1.7 million to the OIG for further investigation.
Because of the risks we identified in the third party draft payment
process, and in response to a letter from this subcommittee, Education
took action in May 2001 to eliminate the use of third party drafts.
Poor Controls over Government Purchase Cards Resulted in Some
Fraudulent, Improper, and Questionable Purchases:
In our July 2001 testimony before this subcommittee, we described
internal control weaknesses over Education‘s purchase card program,
including lack of supervisory review and improper authorization of
transactions. We found that Education‘s inconsistent and inadequate
authorization and review processes for purchase cards, combined with a
lack of monitoring, created an environment in which improper purchases
could be made with little risk of detection. Inadequate control over
these expenditures, combined with the inherent risk of fraud and abuse
associated with purchase cards, resulted in fraudulent, improper, and
questionable purchases, totaling about $686,000, by some Education
employees.
During the time of our review, Education‘s purchase card program was
operating under policies and procedures that were implemented in 1990.
[Footnote 9] The policy provided very limited guidance on what types of
purchases could be made with the purchase cards. While the policy
required each cardholder and approving official to receive training on
their respective responsibilities, we found that several cardholders
and at least one approving official were not trained. In addition, we
found that only 4 of Education‘s 14 offices required cardholders to
obtain authorization prior to making some or all purchases, although
Education‘s policy required all requests to purchase items over $1,000
be made in writing to the applicable department Executive Officer. We
also found that approving officials did not use monitoring reports that
were available from Bank of America[Footnote 10] to identify unusual or
unauthorized purchases and that only limited use was made of available
mechanisms to block specific undesirable Merchant Category Codes (MCC).
These factors combined resulted in a lax control environment for this
inherently risky program.
Education officials told us the department relied on the approving
official‘s review of the cardholder‘s monthly purchase card statements
to ensure that all purchases made by employees were proper. We tested
the effectiveness of the approving officials‘ review of 5 months of
cardholder statements. We reviewed all 903 monthly statements that were
issued during these months, totaling about $4 million, and found that
338, or 37 percent, totaling about $1.8 million, were not approved by
the appropriate approving official. To determine whether improper
purchases were made without being detected, we requested documentation
supporting the $1.8 million of purchases that were not properly
reviewed. We also requested documentation for other transactions that
appeared unusual. We reviewed the documentation provided by Education
and identified some fraudulent, improper, and questionable purchases,
which I will discuss in a moment.
We considered fraudulent purchases to be those that were unauthorized
and intended for personal use. Improper purchases included those for
government use that were not, or did not appear to be, for a purpose
permitted by law or regulation. We also identified as improper
purchases those made on the same day from the same vendor that appeared
to circumvent cardholder single purchase limits.[Footnote 11] We
defined questionable transactions as those that, while authorized, were
for items purchased at an excessive cost, for a questionable government
need, or both, as well as transactions for which Education could not
provide adequate supporting documentation to enable us to determine
whether the purchases were valid.
We found one instance in which a cardholder made several fraudulent
purchases from two Internet sites for pornographic services. The
purchase card statements contained handwritten notes next to the
pornography charges indicating that these were charges for
transparencies and other nondescript items. According to the approving
official, he was not aware of the cardholder‘s day-to-day
responsibilities and did not feel that he was in a position to review
the monthly statements properly. The approving official stated that the
primary focus of his review was to ensure there was enough money
available in that particular appropriation to pay the bill. As a result
of investigations related to these purchases, Education management
issued a termination letter that prompted the employee to resign.
We identified over $140,000 of improper purchases. For example, one
employee made improper charges totaling $11,700 for herself and a
coworker to attend college classes that were unrelated to their jobs at
the department. We also identified improper purchases totaling $4,427
from a restaurant in San Juan, Puerto Rico.[Footnote 12] These
restaurant charges were incurred during a Year 2000 focus group
meeting, and included breakfasts and lunches for federal employees and
nonfederal guests. Education, however, could not provide us with any
evidence that the nonfederal attendees provided a direct service to the
government, which is required by federal statute in order to use
federal appropriated funds to pay for the costs of nonfederal
individuals at such meetings. We have referred this matter to Education‘
s OIG.
Other examples of improper purchases we identified include 28 purchases
totaling $123,985 where Education employees made multiple purchases
from a vendor on the same day. These purchases appear to violate the
Federal Acquisition Regulation provision that prohibits splitting
purchases into more than one segment to circumvent single purchase
limits. For example, one cardholder purchased two computers from the
same vendor at essentially the same time. Because the total cost of
these computers exceeded the cardholder‘s $2,500 single purchase limit,
the total of $4,184.90 was split into two purchases of $2,092.45 each.
In some instances, Education officials sent memos to the offending
cardholders reminding them of the prohibition against split purchases.
We identified five additional instances, totaling about $17,000, in
which multiple purchases were made from a single vendor on the same
day. Although we were unable to determine based on the available
supporting documentation whether these purchases were improper, these
transactions share similar characteristics with the 28 split purchases.
We identified questionable purchases totaling $286,894 where Education
employees paid for new office furniture and construction costs to
renovate office space that they were planning to vacate. Only a small
amount of furniture, including chairs for employees with special needs,
was moved to the new building when department employees relocated.
In addition, we identified as questionable more than $218,000 of
purchases for which Education provided us with no support or inadequate
support to assess the validity. For $152,000, Education could not
provide any support, nor did the department know specifically what was
purchased, why it was purchased, or whether these purchases were
appropriate. For the remaining $66,000, Education was able to provide
only limited supporting documentation. As a result, we were unable to
assess the validity of these payments, and we consider these purchases
to be potentially improper.
After our July 2001 testimony, we issued an interim report,[Footnote
13] that described the poor internal controls over purchase cards and
made recommendations that the department:
* reiterate to all employees established policies regarding the
appropriate use of government purchase cards;
* strengthen the process of reviewing and approving purchase card
transactions, focusing on identifying split purchases and other
inappropriate transactions; and;
* expand the use of MCCs to block transactions with certain vendors.
Recently, Education has made some changes in the way it administers its
purchase card program in an effort to address these three
recommendations. For example, in December 2001, the department issued
new policies and procedures that, among other things, (1) establish
detailed responsibilities for the cardholder and the approving
official, (2) prohibit personal use of the card and split purchases to
circumvent the cardholder‘s single purchase limits, (3) require
approving officials to review the appropriateness of individual
purchases, (4) establish mandatory training prior to receiving the card
and refresher training every 2 years, and (5) establish a quarterly
quality review of a sample of purchase card transactions to ensure
compliance with key aspects of the department‘s policy. If
appropriately implemented, these new policies and procedures are a good
step toward reducing Education‘s vulnerability to future improper
purchases.
Further, in July 2001, the department implemented a new process to
approve purchase card purchases. Instead of the approving official
signing a monthly statement indicating that all transactions are
proper, the approval is now done electronically for each individual
transaction. According to Education officials, most approving officials
and cardholders received training on this new process. In order to
assess the effectiveness of this new approval process, we reviewed a
statistical sample of the monthly statements of cardholders for July,
August, and September 2001. Purchases during these months totaled
$1,881,220. While we found evidence in the department‘s system that all
of the 87 statistically sampled monthly statements had been reviewed by
the cardholder‘s approving official, 20 of the statements had
inadequate or no support for items purchased, totaling $23,151.
[Footnote 14] Based on our work, we estimate[Footnote 15] the most
likely amount of unsupported or inadequately supported purchases during
these 3 months is $65,817. The effectiveness of the department‘s new
approval process has been minimized because approving officials are not
ensuring that adequate supporting documentation exists for all
purchases. In addition, these procedures do not address the problem of
an authorizing official who does not have personal knowledge of the
cardholder‘s daily activities and therefore is not in a position to
know what types of purchases are appropriate.
In response to our recommendation regarding the use of MCCs to block
transactions from certain vendors, in November 2001, the department
implemented blocks on purchases from a wide variety of merchants that
provide goods and services totally unrelated to the department‘s
mission, including veterinary services, boat and snowmobile dealers,
and cruise lines. In total, Education blocked more than 300 MCCs. By
blocking these codes, Education has made use of a key preventive
control to help reduce its exposure to future improper purchases.
As we told you in our July 2001 testimony, Education took action
earlier in 2001 to improve internal controls related to the use of
government purchase cards by lowering the maximum monthly spending
limit to $30,000, lowering other cardholders‘ single purchase and total
monthly purchase limits, and revoking some purchase cards. This action
was in response to a letter from this subcommittee dated April 19,
2001, which highlighted our April 2001 testimony, in which we stated
that some individual cardholders had monthly purchase limits as high as
$300,000. These and the other steps I just discussed have helped reduce
Education‘s exposure to improper purchase card activities. However,
more needs to be done to improve the approval function, which is key to
adequate control of these activities.
Poor Controls Contributed to Loss of Computer Equipment:
Education lacked adequate internal controls over computers acquired
with purchase cards and third party drafts which contributed to the
loss of 179 pieces of computer equipment with an aggregate purchase
cost of about $211,700. From May 1998 through September 2000, Education
employees used purchase cards and third party drafts to purchase more
than $2.9 million of personal computers and other computer-related
equipment. Such purchases were actually prohibited by Education‘s
purchase card policy in effect at the time.
The weak controls we identified over computers acquired with purchase
cards and third party drafts included inadequate physical controls”
according to Education‘s OIG, the department had not taken a
comprehensive physical inventory for at least 2 years prior to October
2000”and lack of segregation of duties, which is one of the most
fundamental internal controls. In the office where most of the missing
equipment was purchased, two individuals had interchangeable
responsibility for receiving more than $120,000 of computer equipment
purchased by a single cardholder, from one particular vendor. In
addition, these two individuals also had responsibility for bar coding
the equipment, securing the equipment in a temporary storage area, and
delivering the computers to the users.[Footnote 16] Furthermore, one of
these two individuals was responsible for providing information on
computer purchases to the person who entered the data into the
department‘s asset management system. According to the cardholder who
purchased the equipment, they did not routinely compare the purchase
request with the receiving documents from the shipping company to
ensure that all items purchased were received. In addition, our review
of records obtained from the computer vendor from which Education made
the largest number of purchase card and third party draft purchases
showed that less than half of the $614,725 worth of computers had been
properly recorded in the department‘s property records, thus
compounding the lack of accountability over this equipment. Combined,
these weaknesses created an environment in which computer equipment
could be easily lost or stolen without detection.
In order to identify computers that were purchased with purchase cards
and third party drafts that were not included in the department‘s asset
management system, we obtained the serial numbers of all pieces of
computer equipment purchased from the largest computer vendor the
department used.[Footnote 17] We compared these serial numbers to those
in the department‘s asset management system and found that 384 pieces
of equipment, including desktop computers, scanners, and printers
totaling $399,900, appeared to be missing. In September 2001, we
conducted an unannounced inventory to determine whether these computers
were actually missing or were inadvertently omitted from the property
records. We located 143 pieces of equipment[Footnote 18] that were not
on the property records, valued at about $138,400, and determined that
241 pieces, valued at about $261,500, were missing at that time.
[Footnote 19]
After we completed our work in this area, we again visited the office
where most of the computer equipment was missing because Education
officials told us they had located some of the missing inventory.
Officials in this office told us that they hired a contractor to keep
track of their computers when the office moved to its new space.
[Footnote 20] According to the officials, as part of its work, the
contractor recorded the serial numbers of all computers moved and
identified 86 of the 241 pieces of computer equipment that we were
unable to locate during our unannounced inventory in September 2001.
However, when Education staff and officials tried to locate this
equipment, they were only able to find 73 of the 86 pieces of
equipment. When we visited, we located only 62 of the 73 pieces of
equipment. Education officials have been unable to locate the remaining
179 pieces of missing computer equipment with an acquisition value of
about $211,700. They surmised that some of these items may have been
surplussed; however, there is no paperwork to determine whether this
assertion is valid.
According to Education officials, new policies have been implemented
that do not allow individual offices to purchase computer equipment
without the consent of the Office of the Chief Information Officer
(OCIO). However, during our previously mentioned review of a
statistical sample of purchase card transactions made from July 2001
through September 2001, we found three transactions totaling $2,231 for
the purchase of computer equipment without any supporting documentation
from the OCIO. Based on these results, the new policies are not being
effectively implemented. This is another indication that the new
purchase card approval function is not fully operating as an effective
deterrent to improper purchases.
In January 2002, we also reviewed the new computer ordering and
receiving processes in the office where most of the missing equipment
was purchased and found mixed results. These new policies are designed
to maintain control over the procurement of computers and related
equipment and include:
* purchasing computers from preferred vendors that apply the
department‘ s inventory bar code label and record the serial number of
each computer on a computer disk that is sent directly to the Education
official in charge of the property records;
* loading the computer disk containing the bar code, serial number, and
description of the computer into the property records; and;
* having an employee verify that the computers received from the vendor
match the serial numbers and bar codes on the shipping documents and
the approved purchase order.
However, a continued lack of adequate physical control negates the
effectiveness of these new procedures. For example, the doors to the
two rooms used to store computer equipment waiting to be installed were
both unlocked and unattended. The receptionist at the mail counter next
to the first storage room we visited told us that he had the door open
to regulate the room temperature. The Education official responsible
for this process stated that he did not know that mailroom personnel
had access to this room. Furthermore, he stated that he does not have a
key to either storage room. Also, during our second search for this
equipment, we visited four rooms where some of the computers were
stored and found them all unsecured.
This lack of physical security was pointed out to the department nearly
7 weeks earlier when we first found some of its temporary computer
storage rooms unsecured. The department‘s new written procedures state
that security guards in the Washington, D.C., facilities should inspect
all bags, cases, and boxes leaving the buildings to determine if they
contain computer equipment, and require property passes for all
equipment removed from the building. However, Education officials
acknowledged that the primary focus of the building security is people
and packages entering the building. Education officials told us that
individuals could likely leave the building with equipment without
being questioned by security. Without enhanced physical security,
Education will continue to be at risk to further computer equipment
losses.
In closing, Mr. Chairman, I want to emphasize the importance of strong
systems of internal control in safeguarding assets and preventing and
detecting fraud, abuse, and errors. The report we are releasing today
makes recommendations that, if fully implemented, will help the
department improve its controls so that fraudulent and otherwise
improper payments can be prevented or detected in the future and
vulnerable assets can be better protected. While Education has already
taken steps to develop new policies and procedures to address the
problems I have outlined today, in many cases they are not yet being
effectively implemented. Vulnerabilities remain in all areas we
reviewed, except for third party drafts, which have been discontinued.
Until Education takes further action to strengthen its internal
controls over Pell Grants, purchase cards, and computer equipment, it
will continue to be susceptible to fraud, waste, abuse, and
mismanagement in these areas.
Mr. Chairman, this concludes my statement. I would be happy to answer
any questions you or other members of the subcommittee may have.
Contact and Acknowledgments:
For information about this statement, please contact Linda Calbom,
Director, Financial Management and Assurance, at (202) 512-9508 or at
calboml@gao.gov. Individuals making key contributions to this statement
include Dan Blair, Lisa Crye, Anh Dang, Bonnie Derby, David Engstrom,
Bill Hamel, Jeff Jacobson, Kelly Lehr, Sharon Loftin, Bridgette Lennon,
Bonnie McEwan, Diane Morris, Andy O‘Connell, Russell Rowe, Brooke
Whittaker, and Doris Yanger.
[End of section]
Footnotes:
[1] U.S. General Accounting Office, Education Financial Management:
Weak Internal Controls Led to Instances of Fraud and Other Improper
Payments, [hyperlink, http://www.gao.gov/products/GAO-02-406]
(Washington, D.C.: March 28, 2002).
[2] U.S. General Accounting Office, Financial Management: Poor Internal
Control Exposes Department of Education to Improper Payments,
[hyperlink, http://www.gao.gov/products/GAO-01-997T] (Washington, D.C.:
July 24, 2001) and Financial Management: Internal Control Weaknesses
Leave Department of Education Vulnerable to Improper Payments,
[hyperlink, http://www.gao.gov/products/GAO-01-585T] (Washington, D.C.:
April 3, 2001).
[3] U.S. General Accounting Office, Financial Management: Financial
Management Challenges Remain at the Department of Education,
[hyperlink, http://www.gao.gov/products/GAO/T-AIMD-00-323] (Washington,
D.C.: September 19, 2000); Financial Management: Review of Education‘s
Grantback Account, [hyperlink,
http://www.gao.gov/products/GAO/AIMD-00-228] (Washington, D.C.: August
18, 2000); Financial Management: Education‘s Financial Management
Problems Persist, [hyperlink,
http://www.gao.gov/products/GAO/T-AIMD-00-180] (Washington, D.C.: May
24, 2000); and Financial Management: Education Faces Challenges in
Achieving Financial Management Reform, [hyperlink,
http://www.gao.gov/products/GAO/T-AIMD-00-106] (Washington, D.C.: March
1, 2000).
[4] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Education, [hyperlink,
http://www.gao.gov/products/GAO-01-245] (Washington, D.C.: January 1,
2001) and High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-01-263] (Washington, D.C.: January 1,
2001).
[5] Because Education‘s Pell Grant data are maintained by school year,
the time frames for the Pell Grant disbursements we reviewed were for
school years 1997-1998, 1998-1999, and 1999-2000.
[6] A Pell Grant is a form of financial aid that is awarded to
undergraduate students who have not earned bachelor‘s or professional
degrees, and who are enrolled in degree or certificate programs.
[7] U.S. General Accounting Office, Student Financial Aid Programs:
Pell Grant Program Abuse, [hyperlink,
http://www.gao.gov/products/GAO/T-OSI-94-8] (Washington, D.C.: October
27, 1993).
[8] U.S. General Accounting Office, Financial Management: Poor Internal
Controls Expose Department of Education to Improper Payments,
[hyperlink, http://www.gao.gov/products/GAO-01-1151] (Washington, D.C.:
September 28, 2001).
[9] Education updated its purchase card policies and procedures in
December 2001.
[10] Bank of America services the purchase card program at Education.
[11] The Federal Acquisition Regulation prohibits splitting purchase
card transactions into more than one segment to avoid the requirement
to obtain competitive bids on purchases over the $2,500 micro-purchase
threshold or to circumvent higher single purchase limits.
[12] The Department of Education has a regional satellite office in
Puerto Rico.
[13] [hyperlink, http://www.gao.gov/products/GAO-01-1151].
[14] Subsequent to the completion of our work in this area, the
department provided us with a copy of an invoice it had obtained to
support one of the charges for training costing $525. According to
Education officials, because the vendor does not routinely generate
invoices for the training courses it provides, this invoice was not
available at the time of our review. The approving official stated that
she approved the charge based on a certificate of completion for the
training course. This certificate was not in the file at the time of
our review.
[15] Our estimate is based on a 95-percent confidence level and used a
test materiality of $94,061. Based on the sample results, the amount of
improper purchases could be as much as $133,895.
[16] One of these individuals was charged in connection with a theft
ring that operated during the period covered by our audit.
[17] We attempted to obtain the invoices from another vendor. However,
it did not provide this information to us.
[18] We did not attempt to find 1 piece of equipment because it was the
only piece ordered by a particular office and the cardholder was not in
when we did our unannounced inventory.
[19] Education‘s Inspector General is in the process of investigating
the disappearance of these vulnerable assets.
[20] This office was in the process of moving to a new building while
we were conducting our audit work.
[End of section]
