Weak financial management exposes Education Dept. to fraud

Financial management at the Education Department is still in a state of disrepair, making the agency vulnerable to a wide array of abuses, auditors have reported.

On May 24, Education Inspector General Lorraine Lewis reported to the House Budget Committee's Task Force on Education that the agency is still vulnerable to fraud and abuse. Auditors from the General Accounting Office told the task force that the agency's fraud problems are linked to its mismanaged financial systems.

"Managers do not receive accurate and timely financial information, such as information on disbursements made and amounts collected, that could be used to identify unusual activity and other anomalies," GAO officials said in their testimony (T-AIMD-00-180).

In one case, currently under investigation by Education's IG office, a manager in the agency's Office of the Chief Information Officer ordered more than $300,000 worth of personal technology, such as computer software, scanners, cordless telephones, Palm computers and walkie-talkies, from the agency's Bell Atlantic service agreement. A Bell Atlantic technician who approved the orders was allowed to charge more than $600,000 in unworked hours for his role as an accomplice.

Lewis also listed several cases of fraud in the Pell grant program, which provides education funds for low-income students. The agency is attempting to identify the types of students most likely to under-report their income with help from the Internal Revenue Service, but full use of the IRS' resources is not yet permitted by law.

Inspector general audits also revealed substantial fraud vulnerability in the area of discharging loans due to disability or death. In one case two doctors, who were also brothers, were forgiven their medical school loans when they submitted disability claims saying they were both wheelchair-bound. But inspector general investigators saw the two brothers riding bikes and swimming at the beach.

Such cases indicate the need for rigorous internal controls, investigations and management reviews of agency program operations, Lewis said.

DOE received qualified opinions on four of its five required financial statements in 1999 and a disclaimer on the fifth. A qualified opinion means segments of the statements were not reliable. A disclaimer of opinion means the auditor could not determine if the information in the statement was reliable.

The 1999 results were an improvement of the previous year, but the improvement was due in large part to enormous effort by Education Department staff to complete time-consuming manual procedures, reliance on external consultants to prepare financial statements, and use of automated tools to work around the fact that the financial system could not generate reliable financial statements.

A few days after the auditors' testimony, the House Committee on Education and the Workforce ordered GAO to complete a careful review of certain Education Department accounts for evidence of fraud. The review is to be completed within six months.