OTHER INFORMATION
100 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

ABOUT THE OTHER INFORMATION SECTION

The Other Information section includes:

 a summary of the Office of Inspector General’s 

(OIG’s) view on the Department’s management and 

performance challenges for fiscal year (FY) 2018,

 a summary of assurances,

 payment integrity,

 fraud reduction efforts,

 reduce the footprint information,

 civil monetary penalty inflation adjustment 

information, and

 Grants Oversight and New Efficiency (GONE) Act 

of 2016 information.

OFFICE OF INSPECTOR 

GENERAL’S MANAGEMENT AND 

PERFORMANCE CHALLENGES

The OIG’s Management and Performance Challenges 

Report provides a summary of what the OIG believes 

are the Department’s biggest challenges for FY 2018. 

The OIG identified the following four challenges: 

(1) Improper Payments, (2) Information Technology 

Security, (3) Oversight and Monitoring, and (4) Data 

Quality and Reporting. The full report is available at the 

OIG website.

SUMMARY OF FINANCIAL STATEMENT AUDIT 

AND MANAGEMENT ASSURANCES

The Summary of Financial Statement Audit and 

Management Assurances provides information about the 

material weaknesses reported by the agency or through 

the audit process. The Department reported no material 

weaknesses in FY 2017.

PAYMENT INTEGRITY

This section summarizes the Department’s efforts to 

maintain payment integrity and to develop effective 

controls designed to prevent, detect, and recover 

improper payments. It also includes information 

regarding the Department’s high-risk programs.

REDUCE THE FOOTPRINT

This section summarizes the Department’s efforts to 

comply with Office of Management and Budget (OMB) 

Management Procedures Memorandum 2013-02, the 

Freeze the Footprint policy implementing guidance. That 

guidance directs agencies to not increase the total square 

footage of their domestic office and warehouse inventory 

compared to an FY 2012 baseline.

GONE ACT OF 2016

The GONE Act summarizes the Department’s efforts 

to track the number and status of grant closeouts 

and extensions.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 101

MEMORANDUM FROM THE OFFICE OF INSPECTOR GENERAL | OTHER INFORMATION

United States Department of Education. Office of Inspector General. 

November 6, 2017.

TO: The Honorable Betsy DeVos Secretary of Education.

FROM: Kathleen S. Tighe Inspector General.

SUBJECT: Management Challenges for Fiscal Year 2018.

The Reports Consolidation Act of 2000 requires the U.S. Department of Education (Department) Office of Inspector General to identify and report annually on the most serious 

management challenges the Department faces. The Government Performance and Results Modernization Act of 2010 requires the Department to include in its agency performance 

plan information on its planned actions, including performance goals, indicators, and milestones, to address these challenges. To identify management challenges, we routinely examine past audit, inspection, and investigative work, as well as issued reports where corrective actions have yet to be taken; assess ongoing audit, inspection, and investigative work 

to identify significant vulnerabilities; and analyze new programs and activities that could post significant challenges because of their breadth and complexity. 

Last year, we presented five management challenges: improper payments, information technology security, oversight and monitoring, data quality and reporting, and information 

technology system development and implementation. Although the Department made some progress in addressing these areas, four of the five remain as a management challenge 

for fiscal year (FY) 2018. We removed information technology system development and implementation because our current body of work does not support its continued reporting 

as a challenge to the Department. Our planned work for FY 2018 includes audits of the Department’s implementation of the Federal Information Technology Acquisition Reform 

Act and the Department’s implementation of the Portfolio of Integrated Value-Oriented Technologies Contracts. Our conclusions from this and other work could result in this area 

returning as a management challenge in future years.

The FY 2018 management challenges are: 

1. Improper Payments,

2. Information Technology Security,

3 .Oversight and Monitoring, and 

4. Data Quality and Reporting. We provided our draft challenges report to Department officials and considered all comments received. We look forward to working with the Department to address the FY 2018 management challenges in the coming year. If you have any questions or would like to discuss these issues, please contact me at (202) 245-6900. 
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OTHER INFORMATION | MEMORANDUM FROM THE OFFICE OF INSPECTOR GENERAL
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 103

The Office of Inspector General (OIG) works to 

promote efficiency, effectiveness, and integrity 

in the programs and operations of the U.S. 

Department of Education (Department). Through our 

audits, inspections, investigations, and other reviews, 

we continue to identify areas of concern within the 

Department’s programs and operations and recommend 

actions the Department should take to address these 

weaknesses. The Reports Consolidation Act of 2000 

requires the OIG to identify and report annually on the 

most serious management challenges the Department 

faces. The Government Performance and Results 

Modernization Act of 2010 requires the Department to 

include in its agency performance plan information on its 

planned actions, including performance goals, indicators, 

and milestones, to address these challenges.

Last year, we presented five management challenges: 

improper payments, information technology security, 

oversight and monitoring, data quality and reporting, 

and information technology system development and 

implementation. Although the Department made some 

progress in addressing these areas, four of the five remain 

as a management challenge for fiscal year (FY) 2018. We 

removed information technology system development 

and implementation because our current body of work 

does not support its continued reporting as a challenge to 

the Department. Our planned work for FY 2018 includes 

audits of the Department’s implementation of the Federal 

Information Technology Acquisition Reform Act and 

the Department’s implementation of the Portfolio of 

Integrated Value-Oriented Technologies Contracts. Our 

conclusions from this and other work could result in this 

area returning as a management challenge in future years.

The FY 2018 management challenges are:

(1) Improper Payments,

(2) Information Technology Security,

(3) Oversight and Monitoring, and

(4) Data Quality and Reporting.

These challenges reflect continuing vulnerabilities and 

emerging issues faced by the Department as identified 

through recent OIG audit, inspection, and investigative 

work. A summary of each management challenge area 

follows. This FY 2018 Management Challenges Report is 

available at http://www2.ed.gov/about/offices/list/oig/

managementchallenges.html.

MANAGEMENT CHALLENGE 1—

IMPROPER PAYMENTS

Why This Is a Challenge

The Department must be able to ensure that the billions 

of dollars entrusted to it are reaching the intended 

recipients. The Department identified the Federal 

Pell Grant (Pell) and the William D. Ford Federal 

Direct Loan (Direct Loan) programs as susceptible to 

significant improper payments. In addition, the Office of 

Management and Budget (OMB) has designated these 

programs as high-priority programs, which are subject to 

greater levels of oversight.

Our recent work has demonstrated that the Department 

remains challenged to meet required improper payment 

reduction targets and to intensify its efforts to successfully 

prevent and identify improper payments. In May 

2017, we reported that the Department’s improper 

payment reporting, estimates, and methodologies were 

generally accurate and complete; however, we identified 

opportunities for the Department to improve (1) its 

policies and procedures over the Direct Loan and Pell 

program’s improper payment calculations, (2) the 

completeness of its improper payment corrective action 

reporting, and (3) the evidence or support for its Agency 

Financial Report reporting. We also concluded that the 

Department did not comply with the Improper Payments 

Elimination and Recovery Act of 2010 (IPERA) because 

it (1) did not meet the reduction targets it established for 

the Direct Loan and Pell programs, (2) did not comply 

with applicable guidance regarding its risk assessment 

for the Vocational Rehabilitation State Grants program, 

and (3) did not consider all required risk factors in 

completing its risk assessments for certain grant programs 

and contracting activities.

OFFICE OF INSPECTOR GENERAL’S (OIG) MANAGEMENT 

AND PERFORMANCE CHALLENGES FOR FISCAL YEAR 

2018 EXECUTIVE SUMMARY
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Overall, our semiannual reports to Congress from April 

1, 2014, through March 31, 2017, included more than 

$2.3 million in questioned or unsupported costs from 

audit reports and more than $44 million in restitution 

payments from our investigative activity. We also recently 

issued a report on Western Governors University that 

identified over $700 million in questioned costs.

Progress in Meeting the Challenge

The Department stated that it places a high value on 

maintaining payment integrity to ensure that Federal 

funds reach intended recipients in the right amount 

and for the right purpose. The Department stated that 

its work to sustain payment integrity in response to 

this challenge includes establishing policies, business 

processes, and controls over key payment activities that 

are intended to prevent, detect, and recover improper 

payments. The Department added that its efforts intend 

to achieve the appropriate balance between making 

timely and accurate payments to recipients, while at the 

same time ensuring the controls are not too costly or 

overly burdensome.

The Department reported that it had developed 

and implemented corrective actions in response to 

OIG recommendations to improve the accuracy and 

completeness of its 2017 improper payment estimates 

for the Direct Loan and Pell Grant programs. The 

Department added that it developed and implemented 

corrective actions to improve its improper payment risk 

assessment process for non-Federal Student Aid (FSA) 

grant programs and contracts.

The Department stated that it continues to assess and 

enhance its controls over payments. According to the 

Department, this includes routinely analyzing application 

and payment data and considering other factors, such 

as program reviews and audit reports, to help identify 

ways to further reduce risks and enhance its controls. The 

Department also stated that its payment integrity internal 

control framework includes more than 500 controls 

designed to help prevent and detect improper payments. 

According to the Department, those controls are included 

in the universe of internal controls that are tested 

annually to assess their design and operating effectiveness. 

When control deficiencies are detected, the Department 

works to identify the root causes, develops corrective 

action plans, and tracks the plans through resolution.

Finally, the Department stated that it has increased its 

efforts to enhance payment integrity through three new 

or ongoing initiatives. These included (1) establishing 

a payment integrity workgroup, (2) developing a 

continuous control monitoring system, and (3) 

developing policies and new business processes to more 

accurately report the number and amount of improper 

payments detected and collected.

What Needs to Be Done

The Department needs to continue to take action to 

improve its ability to reduce improper payments. The 

Department should continue its work to complete 

planned corrective actions to bring programs into 

compliance with IPERA and improve its quality 

control processes, process documents, and policies and 

procedures. While the Department continues to review 

its controls, it should continue to explore additional 

opportunities for preventing improper payments. 

Although the Department has added controls and seeks 

to strike a balance between burden and controls, it 

needs to consider options to strengthen existing internal 

controls and to develop new and cost-effective controls to 

reduce the level of risk.

The Department needs to develop and implement 

processes to more effectively and efficiently monitor 

Student Financial Assistance (SFA) program recipients, 

State educational agencies (SEA), and local educational 

agencies (LEA) to ensure they properly spend and account 

for Federal education funds. This area will remain a 

management challenge until the Department fully meets 

the expectations of IPERA and its monitoring systems 

provide greater assurance that Federal funds are both 

properly distributed and appropriately used by recipients.

MANAGEMENT CHALLENGE 2—INFORMATION 

TECHNOLOGY SECURITY

Why This Is a Challenge

Department systems contain or protect an enormous 

amount of sensitive information, such as personal 

records, financial information, and other personally 

identifiable information. Without adequate management, 

operational, and technical security controls, the 

Department’s systems and information are vulnerable to 

attacks. Unauthorized access could result in losing data 

confidentiality and integrity, limiting system availability, 

and reducing system reliability.
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The OIG’s work related to information technology 

continues to identify control weaknesses and ineffective 

security management programs that the Department needs 

to address to adequately protect its systems and data. For 

example, our most recent report on the Department’s 

compliance with the Federal Information Security 

Modernization Act of 2014 (FISMA) concluded that 

the Department’s and FSA’s overall information security 

programs were generally not effective. We found the 

Department and FSA were generally effective in two of 

the five security functions reviewed—identify and recover. 

However, they were not generally effective in the three 

remaining security functions—protect, detect, and respond.

Our report included specific findings in the areas 

of configuration management, identity and access 

management, security and privacy training, information 

security continuous monitoring, and incident response. 

We made recommendations to assist the Department and 

FSA with increasing the effectiveness of their information 

security program so that they fully comply with all 

applicable requirements.

Progress in Meeting the Challenge

The Department reported that it continued to make 

progress in implementing actions to mitigate risks 

associated with information technology security during 

FY 2017. The Department stated that it completed 

a cybersecurity workforce capability assessment to 

identify current gaps in the Department’s cybersecurity 

workforce skills and certifications and developed 

several new cybersecurity guidance documents. The 

Department also noted that the Chief Information 

Security Officer (CISO) is leading coordination efforts 

to meet deadlines for assigning new cybersecurity codes 

to positions with information technology, cybersecurity, 

and cyber-related functions.

The Department further responded that beginning in 

December 2016, the CISO formally established and 

led a Cybersecurity Steering Committee to improve the 

Department’s cybersecurity posture and communicate 

critical information. The Department stated that the 

committee also coordinated and resolved issues that 

impacted the quality and timely reporting of performance 

measures; coordinated reporting for the Department’s 

high-value assets; ensured timely completion of high 

visibility, government-wide security operations directives; 

and completed risk assessment actions required by 

the President’s Executive Order, Strengthening the 

Cybersecurity of Federal Networks and Critical 

Infrastructure, and OMB M-17-25.

The Department reported that the CISO led a number of 

cybersecurity policy updates that include improving the 

Department’s overarching cybersecurity policy guidance, 

revising its Handbook for Cybersecurity Incident 

Response and Reporting, and developing a Cybersecurity 

Strategy and Implementation Plan. According to 

the Department, its plan highlights Departmental 

cybersecurity initiatives, strategies, and action items that 

are directly mapped to the Cybersecurity Framework 

categories. Finally, the Department stated that it 

completed numerous other actions that included the 

completion of risk assessments for all systems in the 

FISMA inventory and the formal designation of a Senior 

Accountable Official for cybersecurity risk.

What Needs to Be Done

The Department is reporting significant progress towards 

addressing longstanding information technology security 

weaknesses. However, we continue to identify significant 

weaknesses in our annual FISMA audits—despite the 

Department’s reported corrective actions to address our 

prior recommendations.

While we commend the Department for placing a 

priority on addressing these weaknesses, it needs to 

continue its efforts to develop and implement an effective 

system of information technology security controls, 

particularly in the areas of configuration management 

and identity and access management. Within 

configuration management, we identified weaknesses that 

include the Department using unsupported operating 

systems, databases, and applications in its production 

environment and not adequately protecting personally 

identifiable information. Within identity and access 

management, we identified weaknesses where the 

Department has not fully implemented its network access 

control solution or two-factor authentication and where 

the Department and FSA did not adhere to the required 

Federal background investigation process for granting 

and monitoring access to its external users.

Our FISMA audits will continue to assess the 

Department’s efforts and this will remain a management 

challenge until our work corroborates that the 

Department’s system of controls achieves expected 

outcomes. To that end, the Department needs to 

effectively address IT security deficiencies, continue 

to provide mitigating controls for vulnerabilities, and 

implement planned actions to correct system weaknesses.
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MANAGEMENT CHALLENGE 3—OVERSIGHT 

AND MONITORING

Effective oversight and monitoring of the Department’s 

programs and operations are critical to ensure that 

funds are used for the purposes intended and programs 

are achieving goals and objectives. This is a significant 

responsibility for the Department given the numbers of 

different entities and programs requiring monitoring and 

oversight, the amount of funding that flows through the 

Department, and the impact that ineffective monitoring 

could have on stakeholders. Two subareas are included in 

this management challenge—SFA program participants 

and grantees.

Oversight and Monitoring—SFA Program Participants

Why This Is a Challenge

The Department must provide effective oversight and 

monitoring of participants in the SFA programs under 

Title IV of the Higher Education Act of 1965, as 

amended, to ensure that the programs are not subject 

to fraud, waste, and abuse. The Department’s FY 2018 

budget request includes $134.2 billion in new grants, 

loans, and work-study assistance to help an estimated 

12.2 million students and their families pay for college.

The growth of distance education has added to the 

complexity of the Department’s oversight of SFA 

program participants. The management of distance 

education programs presents challenges to the 

Department and school officials because little or no 

in-person interaction between the school officials and 

the student presents difficulties in verifying the student’s 

identity and academic attendance. The overall growth 

and oversight challenges associated with distance learning 

increases the risk of school noncompliance with the 

Federal student aid laws and regulations and creates 

new opportunities for fraud, abuse, and waste in the 

SFA programs. Our investigative work has identified 

numerous instances of fraud involving the exploitation of 

vulnerabilities in distance education programs to obtain 

Federal student aid.

Our audits and work conducted by the Government 

Accountability Office continue to identify 

weaknesses in FSA’s oversight and monitoring 

of SFA program participants.

Progress in Meeting the Challenge

The Department reported that it employs several 

oversight tools in its work to ensure program participants’ 

compliance with statutes and regulations and to mitigate 

the inherent risks associated with the administration 

of financial assistance programs. These include (1) 

program reviews, (2) review and resolution of program 

participant’s annual compliance audits and financial 

statements to ensure administrative capability and 

financial responsibility, and (3) certification activities 

to ensure continued eligibility for participation in the 

Federal student aid programs.

The Department stated that during FY 2017, FSA 

implemented actions to improve its oversight and 

monitoring process for schools, lenders, servicers, and 

guaranty agencies. In August 2017, the Department 

announced that FSA was adding several key senior 

executives to help lead and implement a more 

comprehensive, broader approach to its oversight 

function. The Department also reported that FSA had 

begun establishing an integrated system of oversight 

functions that were intended to better ensure compliance 

by all participating parties. The Department intends for 

this approach to oversight to begin with proactive risk 

management that identifies and mitigates risks before 

they pose a threat.

The Department stated that is has also taken steps to 

strengthen its accreditation oversight. According to 

the Department, this includes improving data sharing, 

enhancing its processes to determine agency effectiveness, 

and improving its processes to assess whether agencies 

evaluate institutions in a manner consistent with the 

Secretary’s Criteria for Recognition.

The Department stated that this management challenge 

reflects the inherent risks associated with Federal student 

aid and the ongoing challenge to mitigate these risks 

through oversight and monitoring.

What Needs to Be Done

The Department continues to identify important 

accomplishments that are intended to improve its ability 

to provide effective oversight. We recognize the progress 

the Department is making and the need to balance 

controls with both cost and the ability to effectively 

provide necessary services. However, our audits and 
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investigations involving SFA programs continue to 

identify instances of noncompliance and fraud, as well as 

opportunities for FSA to improve it processes.

The financial responsibility provisions that were planned 

to go into effect in July 2017 as part of the borrower 

defense regulation changes would have included tools 

to improve the Department’s oversight of schools. 

Enforcement of such regulations could have improved 

FSA’s processes for mitigating potential harm to students 

and taxpayers by giving FSA the ability to obtain 

financial protection from schools based on information 

that is broader and more current than information 

schools provide in their annual audited financial 

statements. The Department needs to implement 

provisions that will allow it to receive important, timely 

information from publicly traded, private for-profit, and 

private nonprofit schools that experience triggering events 

or conditions. Collecting and analyzing this information 

could improve FSA’s processes for identifying Title IV 

schools at risk of unexpected or abrupt closure.

Overall, the Department needs to ensure that the 

activities of its new efforts to better coordinate 

oversight result in effective processes to monitor 

SFA program participants and reduce risk. It should 

work to ensure that its program review processes are 

designed and implemented to effectively verify that 

high-risk schools meet requirements for institutional 

eligibility, financial responsibility, and administrative 

capability. The Department further needs to ensure 

its oversight functions work together to effectively 

provide the intended additional protections to students 

and taxpayers. Finally, the Department could enhance 

its oversight of SFA programs by developing and 

implementing improved methods to prevent and detect 

fraud. This includes methods to limit the effectiveness of 

organized activities involving distance fraud rings.

Oversight and Monitoring—Grantees

Why This Is a Challenge

Effective monitoring and oversight are essential for 

ensuring that grantees meet grant requirements and 

achieve program goals and objectives. The Department’s 

early learning, elementary, and secondary education 

programs annually serve nearly 18,200 public school 

districts and 50 million students attending more than 

98,000 public schools and 32,000 private schools. Key 

programs administered by the Department include 

Title I of the Elementary and Secondary Education Act, 

which under the President’s 2018 request would deliver 

$15.9 billion for local programs that provide extra 

academic support to help nearly 25 million students in 

high-poverty schools meet challenging State academic 

standards. Another key program is the Individuals with 

Disabilities Education Act, Part B Grants to States, which 

would provide about $11.9 billion to help States and 

school districts meet the special educational needs of 6.8 

million students with disabilities.

OIG work has identified a number of weaknesses in 

grantee oversight and monitoring. These involve LEA 

and SEA control issues; fraud relating to education 

programs; fraud perpetrated by SEA, LEA, and charter 

school officials; and internal control weaknesses in the 

Department’s oversight processes.

Progress in Meeting the Challenge

The Department noted that mitigating the risks 

associated with grants awarded to States, school districts, 

institutions of higher education, and other entities 

remains a significant challenge given the Department’s 

relatively limited resources for oversight and monitoring. 

The Department stated that in response to this challenge, 

it initiated an enterprise-approach to risk management in 

FY 2017 and implemented targeted actions to improve 

support for grant recipients. The Department added that 

these actions focused on increasing staff expertise and 

leveraging risk-based tools and approaches to provide 

improved technical assistance and oversight.

The Department also reported that it completed several 

activities that were intended to improve its monitoring 

skills and capacity across offices through a variety of 

collaborative training and development efforts. Examples 

included developing training related to distance 

monitoring and providing technical assistance.

The Department added that it has implemented 

a number of new risk-based monitoring tools and 

approaches. The Department stated that its Risk 

Management Service provided analysis of complex 

monitoring issues that are intended to support wellinformed, timely decision-making and preparation 

for site monitoring visits. The Department further 
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reported that it deployed two monitoring tools that were 

intended to (1) assist in analyzing risk and create riskbased monitoring plans and (2) centralize and automate 

key monitoring data while expanding the monitoring 

information into new areas.

The Department also noted that its grant offices had 

implemented a number of new risk-based approaches 

to better target limited resources on those educational 

agencies and entities in need of the most assistance. 

This included the expansion of the Office of Elementary 

and Secondary Education’s (OESE) fiscal monitoring 

pilot that leverages joint reviews across its programs. 

The Department reported that this approach has better 

positioned it to work more proactively with SEAs and 

LEAs, identify issues of concern, and share best practices 

and lessons learned.

The Department further reported other improvements 

that included the Office of Career, Technical, and 

Adult Education’s enhancements to its comprehensive 

monitoring web portal, the Office of Postsecondary 

Education’s collaboration with other offices in developing 

and implementing a standard discretionary grant site 

visit monitoring tool, and the Institute of Education 

Sciences’ efforts to improve the oversight of privacy and 

information security.

What Needs to Be Done

The Department acknowledges that this area is a major 

risk and points out actions it has taken to address this 

challenge. In particular, its efforts to pilot joint program 

fiscal monitoring reviews appear to leverage its limited 

resources to focus on areas of risk. The Department 

should closely review the results of this pilot and look 

for ways to improve it and expand it into other areas. 

Also, the Department should continue to make use of 

risk-based information, develop common training and 

procedures, and take steps to ensure that its program 

offices are consistently providing effective risk-based 

oversight of grant recipients across applicable Federal 

education programs.

As various offices implement improvements to 

monitoring, such as those cited above, the Department 

should review their effectiveness and replicate effective 

practices to other program areas. Given the Department’s 

generally limited staffing in relation to the amount 

of Federal funding it oversees, it is important for the 

Department to continue to explore ways to more 

effectively leverage the resources of other entities that 

have roles in grantee oversight. Another area where 

there is the potential to make use of limited resources 

to improve oversight is to review the results of single 

audits and program monitoring efforts in order to revise 

the single audit process and updates to the 2 C.F.R. 

200, Subpart F—Compliance Supplement to improve 

program compliance and help mitigate fraud and abuse.

MANAGEMENT CHALLENGE 4—DATA QUALITY 

AND REPORTING 

Why This Is a Challenge

The Department, its grantees, and its subrecipients 

must have effective controls to ensure that reported 

data are accurate and reliable. The Department relies 

on program data to evaluate program performance and 

inform management decisions. Our work has identified a 

variety of weaknesses in the quality of reported data and 

recommended improvements at the Department, SEA, 

and LEA level. This included weaknesses in controls over 

the accuracy and reliability of program performance and 

graduation rate information provided to the Department.

Progress in Meeting the Challenge

The Department reported that it made progress in 

FY 2017 to implement actions that are intended to 

mitigate the inherent risks associated with data quality. 

The Department stated that it continued to build 

standardized procedures to evaluate the quality of SEAsubmitted data. As an example, the Department noted 

that two of its offices used a new tool to identify, followup, and track individual State data quality concerns after 

the submission of School Year 2015–16 Consolidated 

State Performance Reports.
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The Department stated that it developed a policy that 

promotes a comprehensive approach to active and 

strategic data management with clearly identified roles 

and responsibilities for data management work. The 

Department added that the EDFacts Data Governance 

Board continues to promote and support program offices’ 

stewardship of data through a unified Information 

Collection package, standardized technical reporting 

instructions, centralized data submission systems, and 

increasingly standardized post-submission data quality 

procedures. The Department also reported that it 

implemented a new certification for Consolidated State 

Performance Reports. The certification served as reminder 

that the person certifying the data was providing 

assurance, on behalf of the State, of the accuracy of the 

data submission to the Department.

The Department stated that the EDFacts Data 

Governance Board routinely meets to exchange best 

practices. For example, board members shared strategies 

used with State grantees to document data review 

procedures, build replicable processes, and generate 

meaningful and timely messages back to the grantees 

post-data submission. The Department further stated that 

the National Center for Education Statistics developed 

a basic Data Quality Summary Form that will be shared 

with the Department principal offices for use in their 

reviews of submitted data files.

The Department also reported that OESE initiated work 

to develop a plan to address issues of data quality, data 

security, data reporting, and overall data management. As 

part of the effort, OESE is using prior OIG data quality 

recommendations as areas for possible improvement. 

Finally, the Department stated that the Office of 

Career, Technical, and Adult Education continues to 

offer several ongoing initiatives to help States develop 

and implement accountability systems that yield valid, 

reliable, and complete data on the progress of career 

and technical education students. The Department 

reported that these efforts included annual conferences 

to improve the quality and consistency of the definitions 

and measurement approaches that States use to report 

performance data, conference calls to discuss emerging 

issues in accountability, and customized technical 

assistance to States to improve the validity, reliability, and 

completeness of their data.

What Needs to Be Done

The Department continues to complete significant work 

that is intended to improve the overall quality of data that 

it collects and reports. This effort remains important, as 

data quality contributes to effective program management 

and helps ensure the credibility of information published 

by the Department. Although the Department has made 

progress in strengthening both grantees’ data quality 

processes and its own internal reviews of grantee data, 

this area is an ongoing challenge. Our recent audits 

continue to find weaknesses in grantees’ internal controls 

over the accuracy and reliability of program performance 

and graduation rate information. 

The Department’s efforts by the EDFacts Data 

Governance Board to promote common strong practices 

across its program offices is an important step to 

improving the quality of data the Department relies 

on. In addition, efforts to strengthen data certification 

statements and reach out to States and other entities that 

report data to the Department are important steps to 

reinforce the importance of good data quality practices. 

The Department should continue to monitor the quality 

of the data it receives, work to implement effective 

controls to address known weaknesses, and take steps 

to ensure that strong data management practices are 

implemented across the Department as well as by entities 

that submit data to the Department. The Department 

should also make use of its current oversight mechanisms, 

such as single audits and program monitoring protocols, 

to ensure that program participants have strong 

controls to ensure the quality of data submitted to the 

Department and to ensure that they have good practices 

to support the data certifications they sign.
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SUMMARY OF FINANCIAL STATEMENT AUDIT AND 

MANAGEMENT ASSURANCES

The following tables provide a summarized report on the Department’s financial statement audit and its management 

assurances. For more details, the auditors’ report can be found beginning on page 78 and the Department’s management 

assurances on page 21.

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Material Weaknesses Beginning Balance New Resolved Consolidated Ending Balance

Total Material Weaknesses 0 0 0 0 0

SUMMARY OF MANAGEMENT ASSURANCES

Effectiveness of Internal Control over Financial Reporting—Federal Managers’ Financial Integrity Act 

(FMFIA) 2

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

The Department had no material weaknesses in the design or operation of the internal control over financial reporting.

Effectiveness of Internal Control over Operations—FMFIA 2 

Statement of Assurance: Unmodified

Material 

Weaknesses Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total Material 

Weaknesses 0 0 0 0 0 0

Conformance with Financial Management System Requirements—FMFIA 4

Statement of Assurance: The Department systems conform to financial management system requirements.

Nonconformances Beginning Balance New Resolved Consolidated Reassessed Ending Balance

Total 

Nonconformances 0 0 0 0 0 0

Compliance with Federal Financial Management Improvement Act (FFMIA)

Agency Auditor

1. System Requirements No lack of compliance noted No lack of compliance noted

2. Federal Accounting Standards No lack of compliance noted No lack of compliance noted

3. United States Standard General Ledger at Transaction Level No lack of compliance noted No lack of compliance noted
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 111

PAYMENT INTEGRITY

I. PAYMENT REPORTING

Office of Management and Budget (OMB) 

Memorandum M-15-02 defines an improper payment 

as any payment that should not have been made or that 

was supposed to be made, but was made in an incorrect 

amount under legally applicable requirements. Incorrect 

amounts include both overpayments and underpayments 

made to eligible recipients (including inappropriate 

denials of payment or service, any payment that does not 

account for credit for applicable discounts, payments that 

are for an incorrect amount, and duplicate payments). 

An improper payment also includes any payment that 

was made to an ineligible recipient or for an ineligible 

good or service, or payments for goods or services not 

received (except for such payments authorized by law). 

In addition, when an agency’s review is unable to discern 

whether a payment was proper as a result of insufficient 

or lack of documentation, this payment must also be 

considered an improper payment even though the 

payment may be determined to be proper at a later date.

The Department places a high value on maintaining the 

integrity of all types of payments made to ensure that the 

billions of dollars in federal funds it disburses annually 

reach intended recipients in the right amount and for the 

right purpose. The Department ensures payment integrity 

by establishing effective policies, business processes, 

systems, and controls over key payment activities, 

including those pertaining to: payment data quality, cash 

management, banking information, third party oversight, 

assessments of audit reports, and financial reporting. 

The number and dollar value of improper payments 

are key indicators of payment integrity. Accordingly, 

the Department created a robust internal control 

framework that includes over 500 controls designed to 

help prevent, detect, and recover improper payments. In 

designing controls, the Department attempts to strike 

the right balance between making timely and accurate 

payments and ensuring that controls put in place 

are not too costly or overly burdensome and thereby 

deter intended beneficiaries from obtaining funds they 

are entitled to receive. Additionally, the Department 

must rely heavily on controls established by external 

entities that receive Department payments, including 

federal, state, and private organizations and institutions, 

because they further distribute the funds they receive 

from the Department to subordinate organizations and 

individuals. Because these “third-party” controls are 

outside of the Department’s operational control, they 

present a higher risk to the Department, as evidenced 

by the work of the Department’s Office of Inspector 

General (OIG) and our root cause analysis. When control 

deficiencies are detected, either within the Department or 

at external entities, the Department seeks to identify their 

root causes, develop corrective action plans, and track 

corrective actions through to completion.

Readers can obtain more detailed information on 

improper payments at https://paymentaccuracy.gov/.

RISK ASSESSMENTS

As required by OMB Circular A-123, Appendix C, the 

Department assesses the risk of improper payments at 

least once every three years for each program that is 

not reporting an improper payments estimate. When 

the Department conducts a program risk assessment, it 

considers the nine risk factors mandated by the OMB 

guidance. In FY 2017, the Department assessed the risk 

of improper payments for administrative payments, 

contract payments, the Title I program, the Vocational 

Rehabilitation State Grant program, and the following 

FSA programs: Federal Perkins Loan; Health Education 

Assistance Loan; Federal Family Education Loan; Federal 

Supplemental Educational Opportunity Grant; Federal 

Work-Study; Iraq and Afghanistan Service Grant; and 

Teacher Education Assistance for College and Higher 

Education Grant. Risk assessments for contracts and the 

Vocational Rehabilitation State Grant program had been 

conducted in FY 2016, but were repeated in FY 2017 

because of concerns raised by the OIG in its FY 2016 

IPERA audit. Based on the results of the FY 2017 risk 

assessments, the Department concluded that none of the 

programs reviewed were susceptible to risk of significant 

improper payments.
112 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

DESCRIPTION OF RISK-SUSCEPTIBLE 

AND HIGH-PRIORITY PROGRAMS 

In FY 2017, the Pell Grant and Direct Loan programs 

continued to be susceptible to significant improper 

payments and remained OMB-designated high priority 

programs. The Department continues to place additional 

emphasis to ensure payment integrity and minimize 

improper payments in these two important programs as 

required by OMB guidance. Please refer to the Internal 

Controls Section of this AFR for more information. 

Details on improper payment estimates for both 

programs are included within the Payment Reporting 

Root Cause Categories, Corrective Actions, and Section 

VII below.

PELL GRANT 

The Pell Grant program, authorized under Title IV 

of the Higher Education Act of 1965 (HEA), provides 

need based grants to low-income undergraduate and 

certain post baccalaureate students to promote access to 

postsecondary education. 

DIRECT LOAN 

The Direct Loan program, added to HEA in 1993 by 

the Student Loan Reform Act of 1993, authorizes the 

Department to make loans through participating schools 

to eligible undergraduate and graduate students and 

their parents.

IMPROPER PAYMENT ESTIMATES

The Department used a non-statistical alternative sampling 

and estimation methodology to estimate the improper 

payment rate for the Pell Grant and Direct Loan programs 

in FY 2017. Please refer to Section VII, Sampling and 

Estimation Methodology, for additional details about the 

methodology and its statistical limitations.

The Department’s alternative methodology lacks the 

precision that a statistical methodology would provide, 

but is less costly and more efficient. Although the 

methodology was revised in FY 2017 to address some 

of the volatility issues, as described further below in 

Section VII, Sampling and Estimation Methodology, 

there continues to be both imprecision and volatility 

in the improper payments estimates that limit our 

capacity to establish accurate out-year reduction targets. 

Accordingly, reduction targets were set to the current 

year improper payment percentages. We will continue 

to work with relevant stakeholders to consider ways to 

increase precision and decrease volatility in future year 

methodologies and estimates.

Readers can obtain more detailed information on 

improper payments and all of the information reported 

in the past agency financial reports (AFR) at https://

paymentaccuracy.gov/.

 

 

The source of the FY 2017 Pell Grant and Direct Loan outlay amounts is Federal Student Aid (FSA)’s Financial Management System (FMS).
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 113

PAYMENT INTEGRITY | OTHER INFORMATION

Figure 17, FY 2017 Source of Improper Payments, summarizes the estimated amount of improper payments made 

directly by the Department and the amount of improper payments made by recipients of Federal money in FY 2017 for 

the Pell Grant and Direct Loan programs. Improper payments attributed to the Department include, for Pell, estimates 

of misreported income for students not selected for verification and who did not use the IRS Data Retrieval Tool (DRT) 

and, for Direct Loan, Consolidation and Refund improper payments related to the Department’s loan servicing operations. 

Improper payments attributed to recipients of Federal money include improper disbursements of Title IV funds by schools.

Program Overpayments 

(Dollars in Millions)

Overpayments 

(%)

Underpayments 

(Dollars in Millions)

Underpayments 

(%)

Pell Grants $ 2,116.58 95.79% $ 93.12 4.21%

Direct Loans $ 3,329.62 86.19% $ 533.65 13.81%

Total $ 5,446.20 89.68% $ 626.77 10.32%

Table 3. FY 2017 Improper Payments for Risk-Susceptible Programs

 
114 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

PAYMENT REPORTING ROOT CAUSE CATEGORIES

Our analysis indicated that the underlying root causes of improper payments for the Pell Grant and Direct Loan programs 

in FY 2017 were “Failure to Verify—Financial Data” and “Administrative or Process Errors Made by—Other Party.” The 

root causes were identified through improper payment fieldwork and categorized using categories of error as defined in 

the October 2014 update to OMB Circular A-123, Appendix C (OMB Memorandum M-15-02). Specific root causes 

associated with the “Failure to Verify—Financial Data” category include, but are not limited to, ineligibility for a Pell 

Grant or Direct Loan and incorrect self-reporting of an applicant’s income that leads to incorrect awards based on Expected 

Family Contribution. Specific root causes associated with the “Administrative or Process Errors Made by—Other Party” 

category include, but are not limited to, incorrect processing of student data by institutions during normal operations; 

student account data changes not applied or processed correctly; satisfactory academic progress not achieved; incorrectly 

calculated return records by institutions returning Title IV student aid funds; and processing errors at the servicer level.

 

IMPROPER PAYMENT CORRECTIVE ACTIONS

This section presents the corrective actions for the Pell Grant and Direct Loan programs. 

The Department has established an integrated system of complementary oversight functions to help prevent, detect, 

and recover improper payments, and ensure compliance by all participating parties. These oversight functions include 

FSA’s Enforcement Unit and Program Compliance, among others. FSA’s Enforcement Unit is focused on identifying, 

investigating and adjudicating statutory and regulatory violations of the federal student aid programs and on resolving 

borrower defense claims. The Unit plays a central role in coordinating efforts to prevent third-party companies associated 

with student aid programs from harming students, parents and borrowers. Program Compliance likewise plays a central 

role in monitoring and oversight of the institutions (i.e., schools, guaranty agencies, lenders, and servicers) participating 

in the Department’s federal student aid programs. The office establishes and maintains systems and procedures to support 

the eligibility, certification, and oversight of program participants. Program Compliance annually conducts approximately 

150–300 Program Reviews of the approximately 6,000 eligible schools to assess institutions’ compliance with Title IV 

regulations. Program Compliance evaluates a school’s compliance with federal requirements, assesses liabilities for errors 

in performance, and identifies actions the school must take to make the Title IV, HEA programs, or the recipients, whole 

for any funds that were improperly managed and to prevent the same problems from recurring. A school with serious 

violations may be placed on heightened cash monitoring (HCM) for disbursements, lose funding for specific programs, 

or be terminated from participation in all Title IV programs for non-compliance. As of June 1, 2017, 558 schools were on 

HCM, and in FY 2017, 424 schools closed due to non-compliance and other reasons.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 115

PAYMENT INTEGRITY | OTHER INFORMATION

The corrective actions listed below are specific to the root causes of improper payments identified from FY 2017 improper 

payment fieldwork.

Table 4. Corrective Actions—Root Cause Category

IPIA ERROR 

CAUSE

ROOT CAUSE 

CATEGORY CORRECTIVE ACTIONS COMPLETION TIMELINE

Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Incorrect 

awards based 

on Expected 

Family 

Contribution 

(EFC)

EFC is a number that determines students’ eligibility for federal student aid. The EFC 

formulas use the financial information students provide on their Free Application for 

Federal Student Aid (FAFSA) to calculate the EFC. Financial aid administrators (FAAs) 

subtract the EFC from students’ cost of attendance (COA) to determine their need for 

federal student financial assistance offered by the Department.

On July 10, 2017, FSA published the 2018–2019 EFC Formula Guide. The Guide 

includes EFC worksheets and tables for the 2018–2019 processing cycle which 

can help calculate an estimated EFC for students. The Guide provides information 

about the EFC formula worksheets, and direction about when to use the respective 

worksheets. FSA will publish the 2019–2020 Guide with updates to address any 

changes to the formulas and to clarify existing guidance.

In FY 2017, the FSA Training Conference for Financial Aid Professionals was held 

from November 29 to December 2, 2016. The FSA Training Conference is a series of 

training and technical assistance programs provided by the Department for financial 

aid professionals charged with administering the Title IV student financial assistance 

programs on their campuses. In FY 2017, FSA addressed topics related to incorrect 

awards based on EFC. Over 2,000 unique schools registered for the FY 2017 

conference. All 50 states were represented as well as the U.S. territories. More than 

120 Foreign School officials attended from countries all over the world. The session 

recordings are publicly available. In FY 2018, FSA will again hold the FSA Training 

Conference. FSA will promote the training to financial aid professionals. The Training 

Conference will provide guidance about preventing incorrect awards based on EFC.

FSA annually publishes the FSA Handbook. This publication is intended to 

provide guidance to college financial aid administrators and counselors about the 

administration of Title IV aid. The 2017–2018 Handbook includes volumes about 

Student Eligibility and Calculating Awards & Packaging. These volumes provide 

examples and guidance about using EFC to determine and calculate eligibility. FSA 

will publish an updated volume for 2018–2019, including content which addresses 

incorrect awards based on EFC.

FSA has also designed, in collaboration with financial aid professionals, the FSA 

Assessments to help schools with compliance and improvement activities. The 

Assessments contain links to applicable laws and regulations related to administering 

Title IV funds. The Assessments address topics related to incorrect awards based on 

EFC such as student eligibility and financial need and packaging. FSA updated the 

Assessments in May 2017. In FY 2018, FSA will again update the FSA Assessments 

to help address incorrect awards based on EFC.

FSA also offers a free training program: FSA Coach. The FSA Coach training suite 

provides training in the fundamentals of federal student aid program administration, 

focused training in specific topics of interest such as those related to correctly 

awarding funds based on EFC such as Beyond the Basics of Packaging. The Basic 

Training Course for 2016–2017 included 38 lessons in the fundamentals of federal 

student aid program administration and over 45 hours of instruction. For FY 2018, 

FSA will publish updated training content that addresses annual updates for the new 

award year, and interactive exercises and self-assessments to help users assess 

their mastery of the knowledge and skills needed to correctly award based on EFC.

The Department maintains a blog to provide insights on the activities of schools, 

programs, grantees, and other education stakeholders to promote continuing 

discussion of educational innovation and reform. For example, on September 12, 

2017, the Department published an article about common FAFSA mistakes including 

not reading definitions clearly and inputting incorrect information which may impact 

EFC. The Department will continue to update the blog to address incorrect awards 

based on EFC.

In FY 2018, FSA will 

publish an updated 

EFC Formula Guide for 

award year 2019–2020. 

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017.

In FY 2018, FSA 

will publish the 

2018–2019 FSA 

Handbook, including 

updated content which 

addresses incorrect 

awards based on EFC.

In FY 2018, FSA 

will update the FSA 

Assessments to help 

address incorrect 

awards based on EFC.

In FY 2018, the 

Department will 

maintain its blog, 

publishing additional 

articles which address 

incorrect awards based 

on EFC.

In FY 2018, FSA will 

publish updated free 

training content via 

FSA Coach.
116 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Verification 

deficiencies

Verification is the process where schools, in partnership with FSA, confirm the 

accuracy of select data reported by students on their FAFSA. FSA’s Central 

Processing System selects which applications are to be verified. Schools also have 

the authority to verify additional students. Students selected for verification are placed 

in one of several verification tracking groups to determine which FAFSA information 

must be verified. Items verified include Adjusted Gross Income (AGI), taxes paid, and 

other tax data. Income verification helps detect and prevent misreported income.

FSA will complete an analysis of the verification data to inform the upcoming award 

year cycle before launch (to allow for system changes) using the most recently 

available data at that time. As with prior years’ verification selection, data-based 

statistical analysis will continue to be used by the Department to select for verification 

of the 2018–2019 FAFSA applicants with the highest statistical probability of error and 

the impact of such error on award amounts.

FSA will also continue to enhance verification procedures, requiring selected schools 

to verify specific information reported on the FAFSA by student aid applicants. 

FSA will publish an updated notice in the Federal Register announcing the FAFSA 

information schools and financial aid applicants may be required to verify, as well 

as the acceptable documentation for verifying FAFSA information. For FY 2017, this 

notice was published in the Federal Register on May 5, 2017.

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. FSA addressed topics related to verification, 

including a session on verification requirements for the 2017–18 FAFSA cycle and 

details on the institutional resolution of conflicting information between the 2016–2017 

and 2017–2018 FAFSAs. The session recordings are publicly available. In FY 2018, 

FSA will again hold the FSA Training Conference. FSA will promote the training to 

financial aid professionals. The Training Conference will provide updated guidance to 

help prevent verification deficiencies.

FSA annually publishes the FSA Handbook. This publication is intended for college 

financial aid administrators and counselors. In FY 2017, FSA published a 2017–2018 

Verification Guide as part of the 2017–2018 FSA Handbook. The Guide was updated 

as of May 2017. The updates for 2017–2018 include updates to address changing 

requirements, clarify existing requirements, and provide links to new resources 

including a new online Q and A. For 2018–2019, FSA will publish an updated 

Verification Guide to address any new requirements and to provide additional 

clarification about existing requirements.

FSA also publishes questions and answers about verification on its website. Additional 

questions and answers were added in FY 2017. FSA added questions and answers to 

help clarify verification requirements if additional questions are identified.

FSA designed, in collaboration with financial aid professionals, a Verification 

Assessment, part of the FSA Assessments which help schools with compliance 

and improvement activities. The Verification Assessment, updated in March 2017, 

contains a consolidated set of links to applicable laws and regulations to assist 

schools with understanding the verification requirements, and guidance and examples 

of verification issues, such as conflicting information.

FSA also offers free verification related training via FSA Coach, a suite of interactive 

courses for new and experienced financial aid administrators in the essential 

knowledge and skills needed to successfully administer the federal student aid 

programs. For FY 2018, FSA will publish updated training content that addresses 

annual updates for the new award year, and interactive exercises and selfassessments to help users assess their mastery of the knowledge and skills needed 

to properly perform verification.

In FY 2018, FSA will 

complete an analysis 

of the verification data 

to inform the upcoming 

award year cycle 

approximately nine 

months before launch 

(to allow for system 

changes) using the 

most recently available 

data at that time.

FSA will publish an 

updated listing of 

FAFSA information 

schools and applicants 

may be required to 

verify for the 2019–

2020 award year in the 

Spring 2018.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017.

In FY 2018, FSA 

will publish the 

2018–2019 Verification 

Guide, including 

updated content which 

addresses verification 

deficiencies.

In FY 2018, FSA will 

publish additional 

questions and answers 

about verification 

requirements to its 

website, if identified.

In FY 2018, FSA will 

update the Verification 

Assessment to help 

address verification 

deficiencies.

In FY 2018, FSA 

will publish updated 

free training content 

related to verification 

via FSA Coach.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 117

PAYMENT INTEGRITY | OTHER INFORMATION

Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Verification 

deficiencies

Beginning with the 2017–2018 award year, applicants are able to complete their 

FAFSA using “prior-prior year” tax data. The use of prior-prior tax data on the FAFSA 

(as opposed to one-year prior information) allows students and families to file the 

FAFSA earlier. Historically, the FAFSA was made available January 1st of each 

calendar year, yet it was uncommon for a family or individual to be prepared to file an 

income tax return in the month of January. Under the prior-prior system change, the 

FAFSA is available on October 1st, rather than January 1st, and students are able to 

use the prior-prior year’s completed income tax return. The IRS DRT which allows for 

automated population of a student’s FAFSA with tax return data, reducing opportunity 

for misreported income, can now be used by more students and families, since tax 

data from two-years prior is readily available upon access to the application.

The impact of prior-prior is assessed through annual reporting of IRS DRT usage 

as part of the Pell Grant and Direct Loan supplemental measures available via 

paymentaccuracy.gov.

Prior-prior was 

implemented on 

October 1, 2016.

In FY 2018, FSA 

will expand the 

population available 

to use the IRS DRT 

to include amended 

tax returns, and tax 

data transferred using 

the IRS DRT will be 

masked to protect 

applicant and 

parent privacy.

Failure to Verify 

Financial Data 

(Identified 

from Program 

Reviews)

Verification 

deficiencies

FSA continues to utilize and promote the IRS DRT, which enables Title IV student 

aid applicants and, as needed, parents of applicants, to transfer certain tax return 

information from an IRS website directly to their online FAFSA. To increase IRS DRT 

usage, and thereby reduce improper payments associated with misreported income, 

FSA has taken action to vigorously increase access to and promote the tool. For the 

2018–2019 application cycle, FSA will be expanding the population available to use 

the tool to include amended tax returns. Additionally, the data transferred from the 

IRS will be masked to improve the privacy of applicant and parent tax information. As 

part of the ongoing effort to expand usage of the IRS DRT by applicants and parents, 

FSA publishes information about the benefits and use of the IRS DRT, including 

on its blog, and sends electronic announcements via Information for Financial Aid 

Professionals urging institutions to promote the use of the IRS DRT.

The IRS disabled the IRS DRT in March 2017 for the 2017–18 FAFSA following 

concerns that data from the tool could be used by identity thieves to file fraudulent 

tax returns. Additional security and privacy protections have been added to address 

concerns that data from the tool could be used by identity thieves to file fraudulent 

tax returns. The IRS DRT is available to use with the 2018–19 FAFSA form. The IRS 

DRT remains the fastest, most accurate way to input tax return information into the 

FAFSA form. The latest information about the status of the IRS DRT is published on 

studentaid.ed.gov.

FSA actively monitors the impact of its promotion of the IRS DRT. For example, FSA 

reports IRS DRT usage figures, disaggregated by dependency status and tax filing 

status on a quarterly basis. FSA also conducts an annual FAFSA/IRS Data Statistical 

Study (Study). This Study includes an analysis of Pell applicants based on IRS DRT 

usage. Additionally, FSA monitors anecdotal reports from schools and IRS DRT users 

via annual surveys, usability studies, and the FSA Feedback System, among 

other mechanisms.

Given the importance 

of IRS DRT usage in 

preventing misreported 

income, IRS DRT 

usage is reported on 

an annual basis on 

paymentaccuracy.

gov as supplemental 

measures for the 

Pell Grant and Direct 

Loan programs. 

The supplemental 

measure results will be 

posted by the end of 

November, 2017.
118 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

processing 

of funds 

during normal 

operations

Incorrect processing of funds during normal operations include failure to properly 

pay credit balances, ineligible use of Title IV funds, incorrect disbursement periods, 

inaccurate application of credit balance to charges for program overages, incorrect 

calculation of lifetime eligibility used (LEU) and Direct Loan annual loan limits, and 

incorrect calculation of Cost of Attendance (COA).

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2017 Training Conference included 

several sessions related to processing of funds during normal operations including: 

150% Direct Subsidized Loan Limit; How Modules Can Affect Title IV; and Foreign 

Schools: Cost of Attendance. The session recordings are publicly available. In FY 

2018, FSA will again hold the FSA Training Conference. FSA will promote the training 

to financial aid professionals. The Training Conference will provide updated guidance 

related to process of funds during normal operations.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2017–2018 Handbook includes volumes about Calculating 

Awards & Packaging, and Processing Aid and Managing FSA Funds, updated in 

September 2017 and August 2017, respectively. These volumes provide examples 

and guidance about processing of funds during normal operations. FSA will publish 

updated volumes for 2018–2019.

FSA designed, in collaboration with financial aid professionals, a Fiscal Management 

and Student Eligibility Assessment, part of the FSA Assessments which help schools 

with compliance and improvement activities. The Fiscal Management Assessment 

and Student Eligibility Assessment, both updated in May 2017, contain a consolidated 

set of links to applicable laws and regulations related to processing of funds during 

normal operations, and related guidance, worksheets, and checklists to help schools 

comply with these requirements.

FSA also offers free training related to processing of funds during normal operations 

via FSA Coach, a suite of interactive courses for new and experienced financial aid 

administrators in the essential knowledge and skills needed to successfully administer 

the federal student aid programs. For example, FSA offered a Limits to Direct 

Subsidized Loan Interest Benefits, and a Monitoring for Pell Grant LEU and Resolving 

Unusual Enrollment History Flags training course for 2016–2017 via FSA Coach. FSA 

also added a new course related to processing of funds during normal operations for 

2016–2017: Administering Federal Student Aid Programs in Nonstandard Terms. For 

FY 2018, FSA will publish updated training content that addresses annual updates 

for the new award year, and interactive exercises and self-assessments to help users 

assess their mastery of the knowledge and skills needed to process funds during 

normal operations.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017.

In FY 2018, FSA 

will publish the 

2018–2019 FSA 

Handbook, including 

updated content which 

addresses processing 

of funds during 

normal operations.

In FY 2018, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2018, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations via 

FSA Coach.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 119

PAYMENT INTEGRITY | OTHER INFORMATION

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

processing of 

student data 

during normal 

operations

Incorrect processing of student data during normal operations includes 

inaccurate or inadequate tracking of clock hours, credit hours, and other 

documentation of attendance.

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2017 Training Conference included 

several related sessions: Administering Adds, Drops, and Withdrawals; Basics of 

Determining Academic Calendars (Standard, Non-Standard, and Non-Term); and 

Administering Title IV Aid for Transfer Students. The session recordings are publicly 

available. In FY 2018, FSA will again hold the FSA Training Conference. FSA will 

promote the training to financial aid professionals. The Training Conference will 

provide updated guidance about processing of student data during normal operations.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2017–2018 Handbook includes a Student Eligibility volume, 

updated in May 2017, which includes a section devoted to enrollment status. This 

volume provides examples and guidance about processing of student data during 

normal operations. FSA will publish an updated volume for 2018–2019.

FSA designed, in collaboration with financial aid professionals, a Fiscal Management 

and Student Eligibility Assessment, part of the FSA Assessments which help schools 

with compliance and improvement activities. The Fiscal Management Assessment and 

Student Eligibility Assessment, both updated in May 2017, contain links to applicable 

laws and regulations about disbursing funds to regular students enrolled in eligible 

programs and enrollment record retention. The Assessments also include related 

guidance, worksheets, and checklists to help schools comply with these requirements.

FSA also offers free training related to processing of student data during normal 

operations via FSA Coach, a suite of interactive courses for new and experienced 

financial aid administrators in the essential knowledge and skills needed to successfully 

administer the federal student aid programs. For FY 2018, FSA will publish updated 

training content that addresses annual updates for the new award year, and interactive 

exercises and self-assessments to help users assess their mastery of the knowledge 

and skills needed to process student data during normal operations.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017.

In FY 2018, FSA 

will publish the 

2018–2019 FSA 

Handbook, including 

updated content which 

addresses processing 

of student data during 

normal operations.

In FY 2018, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2018, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations via 

FSA Coach.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrect 

awards based 

on eligibility

Schools that disburse Title IV funds must demonstrate that they are eligible to 

participate in these programs before they can be certified for participation and must 

maintain eligibility. Further, student and parent borrowers must satisfy eligibility 

requirements for the Title IV funds.

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2017 Training Conference included 

several sessions related to student and institutional eligibility: Maintaining Your 

Institutional Eligibility; Resolving Citizen and Eligible Noncitizen Issues; and Foreign 

Schools: Student Eligibility, SAP, and R2T4. The session recordings are publicly 

available. In FY 2018, FSA will again hold the FSA Training Conference. FSA will 

promote the training to financial aid professionals. The Training Conference will 

provide updated guidance about confirming student and institutional eligibility.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2017–2018 Handbook includes volumes for Student Eligibility 

and School Eligibility and Operations, updated in March and June 2017, respectively. 

This volume provides examples and guidance about student and school eligibility. 

FSA will publish an updated volume for 2018–2019.

FSA designed, in collaboration with financial aid professionals, Student Eligibility and 

Institutional Eligibility Assessments, part of the FSA Assessments which help schools 

with compliance and improvement activities. The Student Eligibility Assessment and 

Institutional Eligibility Assessment, both updated in May 2017, contain a consolidated 

set of links to applicable laws and regulations related to eligibility, and corresponding 

guidance, worksheets, and checklists.

FSA also offers free training related to maintaining and confirming student and 

institutional eligibility via FSA Coach, a suite of interactive courses for new and 

experienced financial aid administrators in the essential knowledge and skills needed 

to successfully administer the federal student aid programs. For FY 2018, FSA will 

publish updated training content that addresses annual updates for the new award 

year, and interactive exercises and self-assessments to help users assess their 

mastery of the knowledge and skills needed to award funds to eligible students 

attending eligible programs and institutions.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017.

In FY 2018, FSA will 

publish the 2018–2019 

FSA Handbook, 

including the Student 

Eligibility and School 

Eligibility and 

Operations volumes.

In FY 2018, FSA 

will update the 

Student Eligibility and 

Institutional Eligibility 

Assessments.

In FY 2018, FSA will 

publish updated free 

training content 

related to awarding 

funds to eligible 

students attending 

eligible programs 

and institutions.
120 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Satisfactory 

Academic 

Progress 

(SAP) 

deficiencies

According to federal regulations, all schools participating in Title IV programs must 

establish satisfactory academic progress (SAP) standards. SAP is a student-eligibility 

requirement and schools are responsible for making sure that students who are not 

making SAP do not receive student financial aid funds. 

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical 

assistance to financial aid professionals charged with administering the Title IV 

student financial assistance programs. The FY 2017 Training Conference included 

two sessions related to SAP: Satisfactory Academic Progress (SAP); and Foreign 

Schools: Student Eligibility, SAP, and R2T4. The session recordings are publicly 

available. In FY 2018, FSA will again hold the FSA Training Conference. FSA will 

promote the training to financial aid professionals. The Training Conference will 

provide updated SAP guidance.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2017–2018 Handbook includes a Student Eligibility volume, 

updated in May 2017, which includes a section devoted to SAP. This volume provides 

examples and guidance about SAP-related issues. FSA will publish an updated 

volume for 2018–2019.

FSA designed, in collaboration with financial aid professionals, a Satisfactory 

Academic Progress Assessment, part of the FSA Assessments which help schools 

with compliance and improvement activities. The Satisfactory Academic Progress 

Assessment, updated in May 2017, contains a consolidated set of links to applicable 

SAP laws and regulations, and related guidance and worksheets.

FSA also offers free training related to SAP via FSA Coach, a suite of interactive 

courses for new and experienced financial aid administrators in the essential 

knowledge and skills needed to successfully administer the federal student aid 

programs. For FY 2018, FSA will publish updated training content that addresses 

annual updates for the new award year, and interactive exercises and selfassessments to help users assess their mastery of the knowledge and skills needed 

to monitor SAP.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017. 

In FY 2018, FSA will 

publish the 2018–2019 

FSA Handbook, 

including updated 

SAP-related guidance.

In FY 2018, FSA will 

update the Satisfactory 

Academic Progress 

Assessment.

In FY 2018, FSA will 

publish updated free 

training content related 

to SAP via FSA Coach.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Program 

Reviews)

Incorrectly 

calculated 

return records

When a recipient of Title IV funds ceases to be enrolled prior to the end of 

a payment period or period of enrollment, schools are required to determine the 

earned and unearned Title IV aid a student has earned 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.

From November 29 to December 2, 2016, FSA held its annual FSA Training 

Conference for Financial Aid Professionals to provide training and technical assistance 

to financial aid professionals charged with administering the Title IV student financial 

assistance programs. The FY 2017 Training Conference included five sessions 

devoted to incorrectly calculated return records: Return to Title IV Funds (R2T4): 

Basic Principles; R2T4 Funds: Advanced Concepts; R2T4 and Credit-Hour Programs; 

R2T4 and Clock-Hour Programs; and Student Eligibility, SAP, and R2T4. The session 

recordings are publicly available. In FY 2018, FSA will again hold the FSA Training 

Conference. FSA will promote the training to financial aid professionals. The Training 

Conference will provide updated guidance for correctly calculating return records.

FSA annually publishes the FSA Handbook for college financial aid administrators 

and counselors. The 2017–2018 Handbook includes a volume dedicated to 

Withdrawals and the Return of Title IV Funds, updated in June 2017. This volume 

provides examples and guidance about the actions a school is required to take when 

a student withdraws. FSA will publish an updated volume for 2018–2019.

FSA designed, in collaboration with financial aid professionals, a Return of Title IV 

Funds Assessment, part of the FSA Assessments which help schools with compliance 

and improvement activities. The Return of Title IV Funds Assessment, updated in 

May 2017, contains a consolidated set of links to applicable laws and regulations 

for the treatment of Title IV funds when a student withdraws, and related guidance, 

worksheets, and checklists to help schools comply with these requirements.

FSA also offers free training related to correctly calculating return records via 

FSA Coach, a suite of interactive courses for new and experienced financial aid 

administrators in the essential knowledge and skills needed to successfully administer 

the federal student aid programs. For example, the FSA Coach offered a Beyond the 

Basics of R2T4, Including R2T4 Modules intermediate training course for 2016–2017. 

For FY 2018, FSA will publish updated training content that addresses annual 

updates for the new award year, and interactive exercises and self-assessments 

to help users assess their mastery of the knowledge and skills needed to correctly 

calculate return records.

FSA will hold the 

FY 2018 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 28 to 

December 1, 2017. 

In FY 2018, FSA 

will publish the 

2018–2019 FSA 

Handbook, including 

updated content which 

addresses withdrawals 

and the return of Title 

IV funds.

In FY 2018, FSA will 

update the Return 

of Title IV Funds 

Assessment.

In FY 2018, FSA will 

publish updated free 

training content related 

to return of Title IV 

funds via FSA Coach.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 121

PAYMENT INTEGRITY | OTHER INFORMATION

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Incorrect 

processing 

of Loan 

Verification 

Certificate 

(LVC)

In FY 2017, of the 120 Direct Loan Consolidation payments sampled, 17 improper 

payments were identified due to incorrect processing of LVCs. There was a 5.20% 

FFEL to Direct Loan Consolidation error rate due to incorrect processing of LVCs. 

These improper payments represent 0.02% of the Direct Loan improper 

payment estimate.

In FY 2018, FSA will meet with the TIVAS to discuss incorrect processing of LVCs, 

determine whether additional training may be beneficial to help ensure the correct 

account, lender, and loan information is processed, and whether the TIVAS’ 

procedures for processing LVCs should be updated to mitigate the risk of 

improper payments.

FSA will initiate an assessment of the feasibility and effectiveness of the TIVAS 

implementing additional levels of QA/QC over processing of LVCs. 

FSA will meet with the 

TIVAS in FY 2018. 

In FY 2019, FSA will 

initiate an assessment 

of the feasibility and 

effectiveness of 

servicers implementing 

additional levels of QA/

QC over processing 

of LVCs.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Documentation 

provided by 

servicer

In FY 2016, FSA developed and shared with the TIVAS a Direct Loan Consolidation 

improper payment fieldwork checklist. This checklist provides the TIVAS guidance 

on the documentation that should be maintained to demonstrate that FFEL to Direct 

Loan Consolidations were made to eligible borrowers, for eligible purposes, and 

for the correct amount. In FY 2016, of the 120 Direct Loan Consolidation payments 

sampled, 36 payments were identified as improper payments due to lack of sufficient 

supporting documentation provided by the TIVAS. In FY 2017, of the 120 Direct 

Loan Consolidation payments sampled, two improper payments were identified due 

to lack of sufficient supporting documentation. There was a 0.01% FFEL to Direct 

Loan Consolidation error rate due to lack of sufficient documentation provided by the 

servicers. These improper payments represent 0.00% of the Direct Loan improper 

payment estimate.

In FY 2018, FSA will reiterate the requirement to maintain sufficient documentation to 

support FFEL to Direct Loan Consolidations were made properly.

In FY 2018, FSA will 

provide the Direct 

Loan Consolidation 

improper payment 

fieldwork checklist 

along with other 

guidance regarding 

documentation that 

must be maintained to 

the TIVAS.

In FY 2018, FSA 

will also send a 

communication 

to the TIVAS 

reiterating the need 

to maintain sufficient 

documentation to 

support FFEL to Direct 

Loan Consolidations 

were made properly.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Direct 

Loan Refunds)

Not applicable; 

no Direct 

Loan Refund 

improper 

payments were 

identified in 

FY 2017.

In FY 2017, FSA developed and shared with the TIVAS a Direct Loan Refund 

improper payment fieldwork checklist. This checklist provides the TIVAS guidance on 

the documentation that should be maintained to demonstrate that refunds were made 

to eligible lenders and borrowers, for eligible purposes, and for the correct amount. 

In FY 2016, of the 120 Direct Loan Refund payments sampled, 10 payments were 

identified as improper payments due to lack of sufficient supporting documentation 

provided by the TIVAS. In FY 2017, of the 120 Direct Loan Refund payments 

sampled, no improper payments were identified. The Direct Loan Refund improper 

payment fieldwork checklist supported the collection of documentation from the 

servicers evidencing that all sampled Direct Loan Refunds were proper.

No additional corrective actions are identified for FY 2018 as no Direct Loan Refund 

improper payments were identified in FY 2017.

In FY 2018, FSA 

will provide the 

Direct Loan Refund 

improper payment 

fieldwork checklist 

along with other 

guidance regarding 

documentation that 

must be maintained to 

the TIVAS.
122 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

II. RECAPTURE OF IMPROPER 

PAYMENTS REPORTING

Agencies are required to conduct recovery audits for 

contract payments and programs that expend $1 million 

or more annually if conducting such audits would 

be cost effective. The Department determined that 

payment recapture audits would not be cost effective 

for any of its loan and grant programs or for contracts. 

A comprehensive report on the cost effectiveness of the 

various recapture audit programs can be found in the 

Department’s FY 2012 Report on the Department of 

Education’s Payment Recapture Audits.

The Department identifies and recovers improper 

payments through sources other than payment recapture 

audits. The Department works with grantees and Title 

IV (FSA) program participants to resolve and recover 

amounts identified in compliance audits, OIG audits, 

and Department-conducted program reviews. The 

Department also analyzes the return of grant funds 

from recipients to determine if they are due to improper 

payments. When an improper payment is detected 

and deemed collectable, the Department establishes an 

account receivable and pursues collections. Recoveries 

are also made through grant program, payroll, and 

other offsets. Recipients of Department funds can 

appeal management’s decisions regarding funds to be 

returned to the Department or they may go bankrupt 

before the Department can collect, thereby delaying or 

decreasing the amounts the Department is able to collect. 

Additionally, the Department has wide discretion to 

make a determination to not collect improper payments 

from grantees in cases where it determines that pursuing 

collections would cause more harm to the federal interest. 

For these and other reasons, not all identified improper 

payments will ultimately be collected and collections will 

not necessarily be made in the same year as when the 

improper payments were identified.

Improper payments recovered outside of formal recapture 

programs, depicted in the graph below, shows that $93.90 

million of improper payments were identified and $42.46 

million were recovered. For detailed information on 

identified and collected improper payments, readers can 

visit https://paymentaccuracy.gov/. The Department 

continues to work to improve its methods to identify, 

collect, and report on improper payment collections.

III. AGENCY IMPROVEMENT OF 

PAYMENT ACCURACY WITH THE

DO NOT PAY (DNP) INITIATIVE

The Department continues its efforts to prevent and 

detect improper payments via the DNP Business Center 

Portal as required by the Improper Payments Elimination 

and Recovery Improvement Act of 2012 (IPERIA). During 

FY 2017, 1,477,930 payments, totaling $163.2 billion, 

were reviewed for possible improper payments through 

the DNP Portal screening including the Death Master 

File and the System for Award Management File. The 

Department validated all potential improper payments 

identified through this screening process were properly 

adjudicated and reported to Treasury timely.

Treasury DNP Analytics—Agency 

Insights Report

The Department worked with Treasury Department’s 

DNP Data Analytics team to assess approximately 2.85 

million Education payments (totaling about $388.6 

billion) disbursed through the Payment Automation 

Manager system from November 1, 2014 to November 

30, 2016. Treasury’s analysis on the Department’s data 

quality was released in a June 2017 Agency Insight Report 

(AIR), which included a high-level overview of key 

findings and insights derived from the Treasury analysis.

The AIR report indicated that the Department’s payment 

data is of high quality, to include having over 99.9% 

of the payment records containing legitimate Tax 

Identification Number data. Additionally, very few of the 

Department’s payment patterns and trends indicated that 

there was a high risk of being improper. The Department 

intends to continue working with Treasury to conduct 

 
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 123

PAYMENT INTEGRITY | OTHER INFORMATION

further analysis of our payment data to ensure it remains 

at the highest quality possible.

IV. BARRIERS

The Department must rely on controls established 

by fund recipients who make payments on behalf of 

the Department. These controls are outside of the 

Department’s operational authority. In designing 

controls, the Department strives to strike the right 

balance between providing timely and accurate payments 

to grant recipients and students, while at the same 

time ensuring that the controls are not too costly and 

burdensome to fund recipients. Additionally, there are 

limitations to the availability of data necessary to verify 

FAFSA information without increasing the burden on 

schools and students. For example, the Internal Revenue 

Code does not currently permit a database match with 

the IRS which would eliminate the need to rely on 

tax transcripts submitted by the applicant (and the 

applicant’s parent, if the applicant is a dependent) to 

verify income data in cases where the IRS DRT is not 

used to transfer tax information directly into the FAFSA. 

A detailed discussion of program-specific barriers can be 

found in the FY 2012 Report on the Department of 

Education’s Payment Recapture Audits.

V. ACCOUNTABILITY

The Department offices, managers, and staff are held 

accountable for promoting payment integrity by being 

held accountable for maintaining effective controls in 

their day-to-day jobs and key management officials 

have specific expectations related to payment integrity 

included in their annual performance plans. Additionally, 

Accountable Officials are identified for the Department 

and FSA.

VI. AGENCY INFORMATION SYSTEMS AND 

OTHER INFRASTRUCTURE

Audit Follow-up

The Department gathers and manages thousands of audits 

of grantees related to our loan and grant programs. Audit 

records are managed, maintained, and analyzed in the 

Department’s automated audit tracking systems. Audits 

are a key source of identifying risks and in identifying 

potential improper payments made by outside entities. 

The Department has demonstrated tremendous success 

in working with grant recipients to resolve audit findings 

timely. The Department is continuously looking for 

options to gain further insight from audit reports and is 

partnering with OMB and others to do so.

VII. SAMPLING AND ESTIMATION METHODOLOGY 

For 2014 AFR reporting, the Department obtained 

approval from OMB to use an alternative methodology 

for estimating improper payments for the Pell Grant 

and Direct Loan programs. The methodology is an 

alternative estimation methodology as it has statistical 

limitations, including reliance on non-random sampling 

and limited sample size. The methodology leverages data 

collected through FSA Program Reviews, which include 

procedures such as determining whether schools properly 

performed verification of students’ self-reported income, 

identifying conflicting applicant data, student academic 

performance, and eligibility on the disbursed funds 

for a sample of students in each review. The alternative 

methodology provides for a more efficient use of 

resources by integrating the estimation methodology into 

core FSA monitoring functions. The Department also 

determined that it would be too costly and inefficient, 

and potentially increase the burden on schools and 

students to an unacceptable level, to increase the reviews 

that make up its alternative methodology to a level that 

would meet the precision rate prescribed by OMB. 

On April 30, 2017, the Department submitted to 

OMB for approval updates to the alternative sampling 

plan and estimation methodology. These updates to the 

methodology incorporate changes in response to findings 

from the OIG’s FY 2016 IPERA Compliance Audit Report, 

U.S. Department of Education’s Compliance with Improper 

Payment Reporting Requirements for Fiscal Year 2016. The 

updates include grouping Program Reviews into two 

rather than three strata to help address the volatility of 

the improper payment estimates, which had been noted 

in the past by the Department and OIG. OMB approved 

the Department’s updates to the alternative sampling plan 

and estimation methodology on September 28, 2017. The 

methodology is described in detail on the Department’s 

improper payments website.

The Department recognizes that its alternative estimation 

methodology can lead to volatile improper payment 

estimates. This is largely due to fewer program reviews 

conducted at lower-risk schools even though the lowerrisk schools often account for a much larger portion 

of the dollars disbursed and likely have lower rates of 

improper payment. As a result, the potential exists for 
124 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

student-level improper payment fieldwork results of a 

single observation (such as a single student or school) at 

lower-risk schools to significantly influence the improper 

payment estimates, resulting in volatility of the model.

ADDITIONAL COMMENTS

The Department recently stepped up efforts to enhance 

payment integrity through two new initiatives: 1) 

establishment of a Payment Integrity Workgroup (PIWG) 

and 2) continued refinements to its Continuous Controls 

Monitoring System (CCMS).

PIWG

The Department formed the PIWG to create the 

framework and governance structure to assess the 

various types of payments made by the Department—

including Contracts, Payroll, Interagency Agreements 

(IAAs), Government Purchase Cards (P-Cards), 

Travel, and Transit Benefits.21

The PIWG is working 

to fully document and assess end-to-end business 

processes and existing controls by payment type to be 

sure that we understand the unique risks and other 

relevant characteristics so the Department can design 

more effective business processes and controls. The 

methodology for the PIWG work is based on information 

contained in OMB Circular A-123, Appendices A and C. 

The standup of the PIWG and leadership involvement 

reflects the recognition by the Department of the 

critical importance that payment integrity plays in 

demonstrating financial stewardship to the American 

taxpayer, considering that the Department’s gross outlays 

totaled over $300 billion in FY 2017.

CCMS

The Department developed CCMS to integrate payment 

analysis, case management, and reporting functions 

to automate and streamline the detection, referral for 

recovery, and prevention of improper payments. The 

Department intends to continue to expand the CCMS 

capacities and to integrate it with the Department’s 

existing business processes and systems to provide 

additional assurance regarding payment integrity that is 

supported by data-driven evidence.

2 The review of IAAs and Contracts did not include FSA 

policies and procedures.

Risk Management

The Department took measures to prevent improper 

payments through the use of the Decision Support System 

to run Entity Risk Review reports for non-FSA grant 

awards. Using data drawn from the Department’s grants 

business system, the Federal Audit Clearinghouse, the 

Institutes of Higher Education accreditation reporting, 

and Dun & Bradstreet, this report identifies financial, 

programmatic, and controls risks posed by award to the 

prospective grantee. Grant officers and awarding officials 

use the Entity Risk Review reports in the pre-award stage 

of the grant process to assess grantees’ risk and assist in the 

determination of special conditions for grant awards. They 

also apply these reports in devising monitoring plans for the 

life of the grant, strengthening them as the Department’s 

first line of defense against improper payments by grantees.

In FY 2017, the Department’s discretionary grant 

awards were assessed for risk prior to award in the areas 

of: financial stability; adequacy of management systems 

to meet applicable standards; performance history; 

and compliance with applicable laws and regulations, 

including those related to Suspension and Debarment. 

This work successfully demonstrated the Department’s 

early compliance with 2 C.F.R. Section 205, Federal 

Awarding Agency Review of Risk Posed by Applicants.

Enterprise Risk Management (ERM)

As required by OMB Circular A-123, the Department 

is developing a strategic objective to identify, assess, 

monitor, and manage enterprise risks. An important 

first step in that process was the establishment of a 

governance structure that included bringing together 

senior leadership from across the Department to begin to 

discuss and debate the most important risks to mission 

accomplishment. The implementation strategy for ERM 

will include actions intended to:

 Evaluate and improve the ERM framework, to include 

finalizing a risk profile, assigning risk owners, and 

identifying risk mitigation plans;

 Create a risk-aware culture where risk appetite and 

risk tolerance are openly discussed;

 Integrate the ERM concepts within the 

Department’s existing internal control and 

governance frameworks; and

 Manage enterprise risks in a coordinated and 

integrated manner aligned with achievement of the 

Department’s Strategic Plan, which would include 

considering risks in resource allocation decisions.
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 125

FRAUD REDUCTION EFFORTS

The Department actively participated with OMB and 

other agencies to develop the implementation plan for 

the Fraud Reduction and Data Analytics Act (FRDAA) 

of 2016. On May 12, 2017, OMB sent a FRDAA 

implementation plan to Congress. Since then, OMB has 

been working with federal agencies to issue additional 

guidelines and to share best practices. The Department 

will continue to work with OMB to implement the 

FRDAA. Although controls related to the prevention 

and detection of improper payments are often the same 

for fraud detection, reporting on fraud presents unique 

challenges for agencies, including:

 Establishing a common definition for fraud that is 

relevant to the specific agency programs and activities;

 Developing a fraud taxonomy to accurately address 

areas of fraud risk; and

 Accurately estimating and reporting the rate of fraud, 

considering that due-process, intent, and legal factors 

are involved with fraud, which are not present in 

improper payments.

Despite these challenges, the Department will continue 

to refine its business processes to be in a better position 

to define, deter, detect, and take action on fraud. In 

July 2015, GAO published its Fraud Risk Management 

Framework and Selected Leading Practices and the 

Department has implemented a number of leading 

practices consistent with that framework. For example, 

FSA continues to make expanded use of data analytics 

to identify anomalies, trends, and patterns in application 

and disbursement data to help identify potential fraud. 

FSA also continues to collaborate with OIG to receive 

and analyze fraud referrals to help identify potential 

fraud indicators for suspicious student activity. FSA 

established a fraud unit and recently appointed a 

Senior Advisor on Fraud to support OIG fraud referral 

analysis and disposition. FSA will use their analysis and 

the work of the fraud unit to strengthen its internal 

controls. FSA also conducts internal training on fraud 

prevention and detection as well as listening sessions 

with the school community on fraud trends and good 

practices in prevention and detection. Additionally, the 

Department has catalogued internal controls related to 

fraud prevention and detection, to include 52 detective 

and 109 preventive controls related to its grant programs 

and administrative payments.

To combat improper use of federal funding under the 

Every Student Succeeds Act, the Department requires that 

each recipient and sub-recipient publically display the 

contact information of the Department’s OIG hotline 

to facilitate the reporting of suspected improper use of 

ESSA funding and that each recipient and sub-recipient 

provides assurance of truthfulness and accuracy of the 

information they provide in applications and in response 

to monitoring and compliance reviews.
126 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

This effort strives to bring a new approach to the 

workplace at the Department, by building greater 

employee performance and productivity through 

innovative space designs and technology enhancements, 

while reducing the agency’s space footprint and associated 

out-year costs. The project will also allow the agency to 

meet the new federal space guidelines (150–180 usable 

square footage/person vs. the current usable square 

footage of 338).

THE DEPARTMENT CHALLENGES ARE:

 Limited IT tools to support new mobile workforce,

 IT infrastructure is outdated,

 In some cases, telework expansion has outpaced 

space designs, and

 Agency employee recruitment efforts restricted to 

a limited number of states, limiting the size of the 

mobile workforce.

THE DEPARTMENT STRATEGY IS TO:

 Upgrade the IT infrastructure,

 Provide mobile workers with 21st century tools,

 Strengthen the Performance Management Program, 

 Promote cultural acceptance of a mobile workforce,

 Design innovative work spaces,

 Implement an Electronic Records Management 

System, and

 Reduce the space footprint.

The square footage totals are for the office and warehouse 

domestic assets, which are assets located in the 50 states, 

Washington, D.C., and United States territories. The 

square footage total includes owned and leased assets. 

Updated square footage information is posted on the 

performance.gov website.

REDUCE THE FOOTPRINT

Table 5. Reduce the Footprint Baseline Comparison

FY 2015 Baseline 2016 Change (FY 2015 Baseline–2016)

Square Footage 1,548,425 1,381,775 (166,650)
FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 127

Table 6.

CIVIL MONETARY PENALTY ADJUSTMENT FOR INFLATION

The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended, requires agencies to make regular and consistent 

inflationary adjustments of civil monetary penalties to maintain their deterrent effect. To improve compliance with the 

act, and in response to multiple audits and recommendations, agencies should report annually in the Other Information 

section the most recent inflationary adjustments to civil monetary penalties to ensure penalty adjustments are both timely 

and accurate.

Location for Penalty Update Details:

https://www.federalregister.gov/documents/2017/04/20/2017-08034/adjustment-of-civil-monetary-penalties-for-inflation

Penalty Authority Date of Previous 

Adjustment

Date of Current 

Adjustment

Current Penalty 

Level

Failure to provide information for cost of higher education 20 USC 

1015(c)(5) 1-Aug-16 20-Apr-17 $36,849 

Failure to provide information regarding teacherpreparation programs20 USC 

1022d(a)(3) 1-Aug-16 20-Apr-17 $30,694 

Violation of Title IV of the HEA 20 USC 1082(g) 1-Aug-16 20-Apr-17 $54,789 

Violation of Title IV of the HEA 20 USC 

1094(c)(3)(B) 1-Aug-16 20-Apr-17 $54,789 

Failure to disclose information to minor children and parents 20 USC 

1228c(c)(2)(E) 1-Aug-16 20-Apr-17 $1,617 

Improper lobbying for government grants and contracts 31 USC 

1352(c)(1) 1-Aug-16 20-Apr-17 $19,246 to $192,459

False claims and statements 31 USC 3802(a)(1) 1-Aug-16 20-Apr-17 $10,957 
128 FY 2017 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

The goal of the Grants Oversight and New Efficiency 

(GONE) Act of 2016 (Pub. L. No. 114-117) is to 

close out grants and cooperative agreements that 

are in manual closeout with zero dollars and undisbursed 

balances and whose period of performance has exceeded 

two years.

Starting with an October 3, 2016, baseline of 8,948 

grants and cooperative agreements totaling approximately 

$2 billion in various statuses of the closeout process, the 

Department achieved tremendous success as shown below.

While the Department succeeded in closing out over 99 

percent of the required grants and cooperative agreements 

during FY 2017, this was not accomplished without 

THE GRANTS OVERSIGHT AND NEW EFFICIENCY (GONE) 

ACT OF 2016

challenges. The Department’s most pressing challenges 

in the closeout process were: devotion of the time and 

resources of limited program office staff to the closeout 

process, while awarding grants and performing monitoring 

functions; delays in obtaining required final performance 

and financial reports and missing final reports; unresolved 

audit findings; and recording extensions in the 

Department’s grants management system.

The Department’s planned corrective actions to 

address these challenges include integrating a financial 

monitoring curriculum into the Department’s grants 

training and updating our grants management system.

Source: G5, grants management system linked to the Department’s general ledger system.

Category 2–3 Years >3–5 Years > 5 Years

Number of Grants/Cooperative Agreements 

with Zero Dollar Balances 3 - -

Number of Grants/Cooperative Agreements 

with Undisbursed Dollar Balances 7 - -

Total Amount of Undisbursed Balances $7,488,316 - -

Table 7.