Transcript U.S. Department of Education Office of Inspector General

U.S. Department of Education
Office of Inspector General
Fundamentals of Title IV
Administration
Office of Inspector General
Investigation Services Overview
Presented by OIG Investigation Services
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AGENDA
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OIG Organization and Mission
FSA and OIG Coordination
Sources of Allegations
Fraud Indicators
Examples of Title IV Fraud Schemes
Detecting and Preventing Distance Education Fraud
Standards of Administrative Capability
Criminal Liability
Civil Liability
Contact Information
Question and Answer
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Inspector General Act of
1978
…to prevent and detect fraud,
waste and abuse and improve
the economy, efficiency and
effectiveness of Education
Department programs and
operations.
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OIG Mission Statement
To promote the efficiency, effectiveness,
and integrity of the Department's programs
and operations, we conduct independent
and objective audits, investigations,
inspections, and other activities.
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ORGANIZATIONAL CHART
Part of the
Department
BUT…
Independent
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OIG Components
• Audit Services
• Investigation Services
• Evaluation, Inspection and Management
Services
• Information Technology Audits and Computer
Crime Investigations
• Immediate Office/Counsel/Public Affairs
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FSA and OIG Coordination
The Office of Inspector General assists the Department in promoting
the integrity of the Title IV programs.
• Review and comment on all regulations to suggest areas for
improvement.
• Regularly exchange information with FSA to identify current
issues in compliance and abuse and coordinate oversight and
investigatory activities when appropriate.
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FSA and OIG Coordination
Investigative Services also issues Investigative Program Advisory
Reports (IPAR) to the Department, including FSA. An IPAR alerts FSA
about findings from investigations and makes recommendations to
mitigate future risks of fraud in the Title IV programs.
An IPAR issued in September 2011 resulted in FSA issuing a “Dear
Colleague” letter (GEN-11-17) which provides guidance to address
potential fraud in the Federal student aid programs at institutions of
higher education that offer distance education programs. This letter
provides an overview of the fraud schemes that the OIG detected and
recommends immediate steps that institutions can take to detect and
prevent fraud
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Fraud
A deliberate distortion of the truth in an
attempt to obtain something of value.
or
Lying and cheating.
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Sources of Allegations
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OIG Hotline
OIG Audits and Inspections
Department Program Offices
School Employees and Officials
Guarantee Agencies
Contractors and Sub-contractors
Grantees and Sub-grantees
Citizens and Students
Competing Vendors/Schools
Other Federal Agencies
U.S. Attorney’s Offices
Other OIG Investigations
State and Local Law Enforcement Agencies
Federal Bureau of Investigation
Qui Tam Actions
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Evidence Gathering
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Statutory and Regulatory Access to Records
Consensual Search/Access
Search Warrant
Court Order
Subpoenas
o Grand Jury
o Administrative
• Interviews
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Statutory and Regulatory Access to Records
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Under the Inspector General Act of 1978, as amended, OIG can access any
records available to the Department of Education in order to perform audits,
investigations and inspections of Department programs and operations.
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The Family Educational Rights and Privacy Act (FERPA) requires schools
receiving funding from the Department of Education to protect the privacy of
student education records. In many cases consent must be received from a
parent or student before records can be disclosed.
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FERPA provides that consent is not required in order to disclose student
records to the Office of Inspector General. The regulations provide that
representatives of the Secretary, which include OIG, may have access
without prior consent in connection with an audit, evaluation, or enforcement
of legal requirements related to the Department’s programs.
FERPA regulations can be found at 34 C.F.R. Part 99,
http://www2.ed.gov/policy/gen/guid/fpco/index.html
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Fraud Risks
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One person in control
No separation of duties
Lack of internal controls/ignoring controls
No prior audits
Repeat audit findings
High turnover of personnel
Unexplained entries in records
Unusually large amounts of payments for cash
Inadequate or missing documentation
Inability to answer or respond to basic questions
Altered records
Non-serial number transactions
Inventories and financial records not reconciled
Unauthorized transactions
Related Party Transaction
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Civil False Claims Act
31 U.S.C. § 3729
• Knowingly presents, or causes to be presented, to the
United States Government a false or fraudulent claim for
payment or approval
• …or makes, uses, or causes to be made or used, a false
record or statement to get a false or fraudulent claim paid
or to conceal, avoid, or decrease an obligation to the
Government.
• Burden of Proof – “Preponderance of the Evidence”
(More likely than not).
• Specific Intent to Defraud the Government not an Element.
• Liable for Civil Penalties of between $5.5K and $11K per
count plus 3 times the amount of actual damages.
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Civil False Claims Act
31 U.S.C. § 3729
Knowing and Knowingly Defined.--For purposes of this
section, the terms ``knowing'' and ``knowingly'' mean that a
person, with respect to information:
(1) has actual knowledge of the information;
(2) acts in deliberate ignorance of the truth or falsity of the
information; or
(3) acts in reckless disregard of the truth or falsity of the
information, and no proof of specific intent to defraud is
required.
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Criminal Penalties
Education Fraud
Title 20 U.S.C. § 1097 (a)
• Any person who knowingly and willfully embezzles, misapplies, steals,
obtains by fraud, false statement, or forgery, or fails to refund any funds,
assets, or property provided or insured under this subchapter and part C of
subchapter I of chapter 34 of Title 42, or attempts to embezzle,….
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Persons convicted of a felony shall be fined not more than $20,000 or
imprisoned for not more than 5 years, or both.
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Attempt is defined as, “an undertaking to do an act that entails more than
mere preparation but does not result in the successful completion of the
act.”
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Other Criminal Statutes Used in
Connection with OIG cases:
• 18 USC § 371 - CONSPIRACY
• 18 USC § 1001 - FALSE STATEMENTS
• 18 USC § 1341 - MAIL FRAUD
• 18 USC § 1343 - WIRE FRAUD
• 18 USC § 1014 - BANK FRAUD
• 18 USC § 641 - THEFT OF GOVERNMENT FUNDS
• 18 USC § 666 - THEFT CONCERNING FEDERAL PROGRAMS
• 18 USC § 1030 - COMPUTER FRAUD/EXCEEDING ACCESS
Examples of
Title IV Fraud Schemes
Related to Schools
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Ghost students
Leasing of eligibility
Default rate fraud
90/10 Rule manipulation scheme
Financial statement falsification
ATB fraud
Falsified last date of attendance
Obstruction of a federal audit or
program review.
Fraud/Theft by School Employees
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FAFSA fraud- enrollment
Falsification of GEDs/HS Diplomas
Falsification of attendance and
Satisfactory Academic Progress
Falsification of grades
Failure to make refunds Loan theft/
forgeries
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Example of OIG Investigation
Falsified Attendance Records
School officials engage in a scheme to defraud the Department’s
FSA programs through the use of falsified attendance records in
order to receive, or retain, Title IV funds. This type of scheme
can include:
• Marking students present when they are absent.
• Falsifying “make-up” hours.
• Falsifying the “Last Date of Attendance.”
• Falsifying the number of classroom hours offered and taken
by students.
• Falsifying internship/externship hours and records.
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Example of OIG Investigation
Failure to Make Refund
A school is required to determine the earned and unearned portions of Title IV aid as of
the date the student ceased attendance based on the amount of time the student spent in
attendance or, in the case of a clock-hour program, was scheduled to be in attendance.
School officials engage in schemes to withhold making refunds to the Title IV programs
by:
• Falsifying the “Last Date of Attendance” to avoid making refunds.
• Calculating refunds but don’t return the Title IV funds.
• Falsifying the refund calculation to conceal Title IV refunds due to ED.
This scheme is a criminal act under 20 USC 1097. Based on a U.S. Supreme Court
decision, BATES v. US (1997), the government is not required to prove that failure to
make refunds was done with criminal intent. Government needs to prove only that an
official was aware refunds were due and chose not to pay them.
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Example of OIG Investigation
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Obstruction of a Federal Audit
School officials, with the intent to deceive or defraud, obstruct or
impede a Federal auditor in the performance of their official duties
relating to the administration of the Title IV programs. This type of
scheme can include:
“Cleaning files” by removing or altering documents.
Providing misleading and evasive documents or statements.
Providing false statements to auditors or program reviewers.
“Holding back” requested or relevant information.
“Coaching” employees or students to make false statements.
Changing records during an audit or program review.
The term “Federal auditor” means any person employed on a full- or
part-time or contractual basis to perform an audit, program review, or a
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quality assurance inspection for or on behalf of the Department.
Example of OIG Investigation
Default Rate Manipulation
A high cohort default rate (CDR) could trigger an administrative action against a
school making it ineligible to participate in the Title IV programs.
School officials engage in a scheme to fraudulently lower the school’s CDR by:
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Making payments to lenders or servicers on behalf of students
Completing fraudulent forbearance or deferment forms.
Contacting lenders pretending to be students to gather payment
information.
Misreporting when a student stops attending school.
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Example of OIG Investigation
90/10 Rule Manipulation
As per the “90/10 Rule”, to be eligible for FSA participation, a proprietary school
must derive at least 10% of its revenues for each fiscal year from sources other
than the FSA programs, or be subject to administrative action. A proprietary
school must disclose the percentage of its revenues derived from the FSA
programs in its annual audited financial statements
School officials engage in a scheme to alter the school’s 90/10 ratio calculation
by:
• Over reporting the cash payments received by students.
• Falsely using institutional “grants” in the form of tuition waivers.
• Falsely reporting donations from a third party that are to be used for
institutional scholarships.
• Falsely reporting “school loans” that do not generate an inflow of cash and
are later written off.
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Recent School Employee Fraud Headlines
Florida - Former Everglades University Financial Aid Director Sentenced - A former
Director of Financial Aid at Everglades University was sentenced to serve a year and a
day in prison, 3 years of supervised release, 50 hours of community service, and was
ordered to pay nearly $93,000 in restitution after pleading guilty to 20 counts of
student aid fraud. The former official used her position to embezzle more than
$88,800 in student aid loan checks from students.
New York - City University of New York Employee Sentenced - A former employee at
the City University of New York was sentenced to serve 30 months in prison for
attempting to defraud the school and the Department of more than $3 million in
Recovery Act funds.
New York - Former Iona College Vice President Sentenced - The former Vice
President of Finance was sentenced to time served in prison, 3 years of probation,
community service, and was ordered to pay more than $352,800 in restitution for
embezzling more than $850,000 from the school. From 1999 to 2009, the former
official submitted false vendor invoices and credit card bills for personal expenses to
be paid by the school.
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Recent School Employee Fraud Headlines (cont.)
New York - Former Anthem Institute Employee Sentenced - A former Anthem
Institute admissions representative was sentenced to serve 1 year of probation and
was ordered to pay a $250 fine. The employee forged high school diplomas and GED
certificates in order to enroll students who did not meet standard eligibility
requirements. As a result of her fraudulent actions, 11 students received at least
$73,000 in Federal student aid to which they were not entitled.
Pennsylvania - Point Park University Agrees to $1.4 Million Civil Settlement - Point
Park University agreed to pay $1.4 million to settle allegations that it intentionally
discriminated against certain classes of students in awarding Federal Supplemental
Education Opportunity Grant (FSEOG) Program funds. The University was alleged to
have used a formula that purposely excluded commuter and part-time students from
receiving FSEOG funds to which they were entitled to receive.
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Examples of
Title IV Fraud Schemes
Related to Students
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FAFSA Fraud:
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Social Security Number
Alien Registration Status
Dependency Status
Income and Assets
Number of Family Members in College
Falsification of GEDs/HS Diplomas
Ability To Benefit Fraud
Identity Theft
Distance Fraud Schemes
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Example of OIG Investigation
Distance Education Fraud
These fraud rings generally target institutions with low tuition in the context of distance
education programs and involve a ringleader who:
• Obtains identifying information from “straw” students by promising financial gain.
• Completes multiple financial aid applications using the information collected.
• Applies for admission under the institution's open admissions program.
• Participates minimally in the amount of on-line interaction to secure disbursements.
Once the institution draws down Federal student aid funds, deducts the institutional
charges assessed the straw student, and disburses the credit balances to the straw
student by check or debit card.
Straw students then give a portion of the proceeds to the ringleaders while keeping the
remaining portion.
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Detecting/Preventing
Distance Education Fraud
Detecting fraud before funds have been disbursed is the best way to combat this crime. Some
recommended procedures include implementing automated protocols that monitor information in your
student information data system to identify instances where a number of students:
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Use the same Internet Protocol (lP) address to complete and submit an admissions application.
Use the same IP address to participate in the on-line academic program.
Use the same e-mail address to submit an admissions application.
Use the same e -mail address to participate in the on-line academic program.
Appear to reside in a geographic location that is anomalous to the locations of most students in
the program.
Schools can modify disbursement rules for students participating exclusively in distance learning
programs, which would immediately reduce the amount that fraud ring participants can receive.
Schools have the authority to:
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Delay disbursement of Title IV funds until the student has participated in the distance education
program for a longer and more substantiated period of time.
Make more frequent disbursements of Title IV funds so that not all of the payment period's award
is disbursed at the beginning of the period.
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Recent Distance Education Fraud Headlines
Pennsylvania - Leader of Identity Theft Ring, Five Others Sentenced - The ringleader
of an identity theft scheme and five of his co-conspirators were sentenced for their
roles in a fraud scheme. The individuals submitted false certifications of employment,
educational enrollments, and stolen identities to financial institutions and student
loan lenders in order to obtain Federal student aid funds to which they were not
entitled. Sentences for the six individuals ranged from 30 months in prison to 1 year
of probation, and a total of $434,000 in restitution was ordered.
South Carolina - Ring Leader and Five Co-conspirators Sentenced - Six of fifteen
individuals previously indicted for conspiracy to commit student loan fraud were
sentenced for their role in the scheme. The ringleader allegedly obtained the
personally identifiable information (PII) from the other participants as well as other
individuals, and enrolled them in the online classes at multiple institutions. As a
result of the alleged actions, more than $680,000 in Federal student aid funds was
distributed to the scheme’s participants. Sentences for the six individuals ranged
from 18 months in prison to 5 years of probation, and a total of $312,663 in restitution
was ordered.
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Recent Distance Education Fraud Headlines (cont.)
Wisconsin - Ringleaders Sentenced for Scams at Multiple Schools - The individuals,
previously charged in a 19-count indictment, were sentenced for their roles in a
scheme to fraudulently obtain Federal student financial aid. Between 2003 and 2010,
they allegedly used in excess of 50 persons’ PII in order to apply for and receive
Federal student aid at a number of Minnesota schools. As a result of these alleged
actions, the participants received more than $400,000 in Federal student aid to which
they were not entitled. They were sentenced to 20 and 18 months incarceration, 3
years supervised release, and were ordered to pay $333,546.55 in restitution
Arizona - 65 Individuals Charged in Financial Aid Fraud Ring - From 2006 through
2007, the ring leader recruited individuals to act as “straw students” and apply for
federal financial aid, in the form of Stafford Loans and Pell Grants at Rio Salado
Community College. A “fee” was charged to straw students in amounts ranging from
$500 to $1,500. The ring leader accessed Rio Salado online classes, assuming the
identity of the various straw students, in order to generate records of the straw
students’ “participation” in online classes and cause Rio Salado to authorize financial
aid payments to the straw students. The ring leader was sentenced to 41 months in
prison, and ordered to pay $581,060 in restitution, and ordered to perform 100 hours
of community service.
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Why Report Fraud To
the OIG?
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Statutory and regulatory requirements.
Ethical responsibility.
To deter others from committing fraud and abuse.
To protect the integrity of the Title IV Programs.
To avoid being part of a fraud scheme.
To avoid administrative action.
To avoid civil penalties.
To avoid criminal prosecution.
To avoid incarceration.
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34 CFR § 668.16
Standards of Administrative Capability
The Secretary considers an institution to have administrative capability if the
institution:
(f) Develops and applies an adequate system to identify and resolve
discrepancies in the information that the institution receives from
different sources with respect to a student’s application for financial
aid under Title IV.
(g) Refers to the Office of Inspector General…any credible information
indicating that an applicant for Title IV, HEA program assistance may
have engaged in fraud or other criminal misconduct in connection with
his or her application.
Schools must also refer to the OIG any third-party servicer who may
have engaged in fraud, breach of fiduciary responsibility, or other
illegal conduct involving the FSA Programs.
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Criminal Liability
• 18 U.S.C. § 2, Aiding and Abetting
Whoever commits an offense against the United States or aids, abets,
counsels, commands, induces or procures its commission, is
punishable as a principal.
• 18 U.S.C. § 4, Misprision of a Felony
Whoever, having knowledge of the actual commission of a felony
cognizable by a court of the United States, conceals and does not as
soon as possible make known the same to some judge or other person
in civil or military authority under the United States, shall be fined under
this title or imprisoned not more than three years, or both.
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How You Can Help
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Ensure that staff receive necessary Title IV training.
Review documents thoroughly.
Question documents / Verify authenticity.
Request additional information from the students or
parents.
• Compare information on different documents.
• Contact the OIG if you suspect fraud.
• Cooperate with the OIG in connection with an audit or
investigation.
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In the last 5 years, Title IV related
ED-OIG cases have resulted in…
Criminal Case Results
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442 individuals charged, found guilty, and sentenced for financial aid fraud
$46,872,935 in court ordered restitution
$219,838 in court ordered fines
$672,162 in voluntary repayments
Civil Case Results
• $96,007,461 in civil settlements
• $148,334 in civil judgments
• $3,834,310 in civil recoveries
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Inspector General’s Hotline
1-800-MIS-USED
http://www2.ed.gov/about/offices/list/oig/hotline.html
OIG Investigation Services Contact Sheet
City/State
Ann Arbor, MI
Atlanta, GA
Boston, MA
Chicago, IL
Dallas, TX
Denver, CO
Kansas City, MO
Long Beach, CA
Nashville, TN
New York, NY
Pembroke Pines, FL
Philadelphia, PA
Phoenix, AZ
Pittsburgh, PA
San Juan, PR
Washington, DC
Telephone No.
(312) 730-1630
(404) 974-9430
(617) 289-0174
(312) 730-1630
(214) 661-9530
(303) 844-0058
(816) 268-0530
(562) 980-4141
(615) 902-7327
(646) 428-3861
(404) 974-9430
(215) 656-6900
(562) 980-4141
(215) 656-6900
(787) 766-6278
(202) 245-6918
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QUESTIONS?