OTHER 

INFORMATION
This page intentionally left blank.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 91

ABOUT THE OTHER INFORMATION SECTION

The Other Information section includes:

OFFICE OF INSPECTOR 

GENERAL’S (OIG) 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 2019. 

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 2018.

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.

FRAUD REDUCTION REPORT

This section summarizes the Department’s efforts to 

comply with the Fraud Reduction and Data Analytics Act 

of 2015 (FRDAA) and details fraud reduction initiatives 

undertaken in FY 2018.

REDUCE THE FOOTPRINT

This section summarizes the Department’s efforts 

to comply with Office of Management and Budget 

(OMB) Management Procedures Memorandum-12-12, 

Promoting Efficient Spending to Support Agency Operations

and OMB Management Procedures Memorandum 

2013-02, the Reduce the Footprint policy implementing 

guidance. That guidance directs agencies to reduce 

the total square footage of their domestic office and 

warehouse inventory compared to an FY 2015 baseline.

CIVIL MONETARY PENALTY ADJUSTMENT 

FOR INFLATION

This section reports on the Department’s annual inflation 

adjustments to civil monetary penalties as required 

under the Federal Civil Penalties Inflation Adjustment Act 

Improvements Act of 2015.

GRANTS OVERSIGHT AND NEW EFFICIENCY 

(GONE) ACT OF 2016

The GONE Act summarizes the Department’s efforts 

to track the number and status of grant closeouts 

and extensions.
92

OTHER INFORMATION | MEMORANDUM FROM THE OFFICE OF INSPECTOR GENERAL

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 93

EXECUTIVE SUMMARY

The OIG works to promote efficiency, effectiveness, 

and integrity in the programs and operations 

of the U.S. Department of Education (the 

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 four management challenges: 

(1) improper payments,

(2) information technology security,

(3) oversight and monitoring, and

(4) data quality and reporting.

Although the Department made some progress in 

addressing these areas, each remains a management 

challenge for fiscal year (FY) 2019.

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 2019 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 needs to intensify its efforts to 

successfully prevent and identify improper payments. In 

May 2018, we issued an audit report on the Department’s 

compliance with improper payment requirements for FY 

2017. We found that the Department did not comply 

with the Improper Payments Elimination and Recovery Act 

of 2010 (IPERA) because it did not meet its reduction 

target for the Pell program. The Department reported 

a FY 2017 improper payment rate of 8.21 percent for 

the Pell program, which exceeded its reduction target 

of 7.85 percent. We found that the Department met 

the FY 2017 reduction target for the Direct Loan 

program. We reported that the Department’s improper 

payment reporting, estimates, and methodologies were 

generally accurate and complete. We also found that 

the Department adequately described the oversight and 

financial controls it has designed and implemented to 

identify and prevent improper payments. 

This was the Department’s second consecutive year of 

not meeting its reduction target for the Pell program. 

Under IPERA and OMB guidance, if an agency is not 

in compliance with IPERA for two consecutive fiscal 

years for the same program or activity, the Director of 

OMB will review the program and determine whether 

additional funding would help the agency come into 

compliance. In addition, OMB may require agencies 

that are not compliant with IPERA (for one, two, or 

three years in a row) to complete additional requirements 

beyond the measures listed in the guidance. For example, 

if a program is not compliant with IPERA, OMB may 

determine that the agency must reevaluate or reprioritize 

its corrective actions, intensify and expand existing 

corrective action plans, or implement or pilot new tools 

and methods to prevent improper payments. OMB will 

notify agencies of additional required actions as needed.

OFFICE OF INSPECTOR GENERAL’S (OIG) MANAGEMENT 

AND PERFORMANCE CHALLENGES FOR FISCAL YEAR 

2019 EXECUTIVE SUMMARY
94

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Overall, our semiannual reports to Congress from April 

1, 2015, through March 31, 2018, included more than 

$715 million in questioned or unsupported costs from 

audit reports, which may be determined to be improper 

payments, and more than $45 million in restitution 

payments from our investigative activity.

Progress in Meeting the Challenge

The Department stated that it is committed to 

maintaining the integrity of payments to ensure that 

the billions entrusted to it reach intended recipients 

in the right amount and for the right purpose. The 

Department stated that it sustains payment integrity by 

establishing policies, business processes, and controls 

over key payment activities, to include those pertaining 

to payment data quality, cash management, banking 

information, and financial reports. Payment integrity 

includes robust controls designed to prevent, detect, and 

recover improper payments. The Department added that 

in designing such controls, it strives to strike the right 

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 

noted that it must rely in part on controls established by 

the recipients of Federal funds, including State, local, and 

private organizations that further distribute those funds 

on behalf of the Department. The Department stated 

that because these third-party controls are outside of the 

Department’s operational authority, they present a higher 

risk than the payments made directly by the Department, 

as evidenced by the OIG work and the Department’s root 

cause analyses.

The Department stated that its current nonstatistical 

estimation methodology for improper payments in 

student aid programs limits the ability to establish 

accurate out-year reduction targets. The Department 

noted that it coordinated with OMB and other 

stakeholders in 2018 to develop a statistically valid 

methodology that will be implemented in 2019 to 

estimate improper payments for the Pell Grant and Direct 

Loan programs. The Department believed that this new 

methodology will improve the accuracy of the estimates 

and the Department’s ability to meet reduction targets. 

In addition, the Department stated that it is pursuing 

legislation that would authorize the Internal Revenue 

Service to disclose tax return information directly to the 

Department for the purpose of administering programs 

authorized by Title IV of the Higher Education Act of 

1965, through which the Department awarded more 

than $120 billion in FY 2017. The Department expects 

the exemption would allow for significant simplification 

of and improvement to the administration of Title IV 

programs, including reduction in improper payments. 

The Department stated that it is also developing 

an updated portfolio of risks through its Enterprise 

Risk Management program that is intended to help 

ensure that the risk of improper payments across the 

Department is managed strategically. The Department 

further stated that it is working to integrate its 

Enterprise Risk Management framework with its 

internal control program to help prevent and detect 

improper payments. The Department’s internal control 

framework over payment integrity includes over 500 

controls designed to help prevent, detect, and recover 

improper payments. These controls are included in 

the universe of internal controls the Department 

tests annually to assess their design and operating 

effectiveness. When the Department detects control 

deficiencies, it identifies the root causes, develops 

corrective action plans, and tracks the completion of the 

corrective action through resolution.

What Needs to Be Done 

The Department needs to continue to take action to 

improve its payment integrity. The Department should 

continue its work to develop a methodology to accurately 

estimate improper payments, identify root causes, 

meet reduction targets, develop corrective action plans, 

and complete these plans to ensure programs comply 

with IPERA. The Department should also review and 

improve its business processes and controls over key 

payment activities to explore additional opportunities for 

preventing improper payments. 

The Department needs to develop and implement 

processes to more effectively and efficiently monitor 

institutions participating in the student financial 

assistance programs, State education agencies, and 

local educational agencies 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. 
95

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018 | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 lost data 

confidentiality and integrity, limited system availability, 

and reduced system reliability.

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) noted 

that the Department and Federal Student Aid (FSA) 

made progress in strengthening their information 

security programs; however, we found weaknesses in the 

Department’s and FSA’s information systems and those 

systems continued to be vulnerable to security threats. 

As guided by the maturity model used in the FY 2017 

Inspector General FISMA Metrics, we found that the 

Department and FSA were not effective in all five security 

functions—Identify, Protect, Detect, Respond, and 

Recover. We also identified findings in all seven metric 

domains: (1) Risk Management, (2) Configuration 

Management, (3) Identity and Access Management, 

(4) Security Training, (5) Information Security 

Continuous Monitoring, (6) Incident Response, and 

(7) Contingency Planning. 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 stated that it has made significant 

progress managing risk associated with information 

technology security. In particular, the Department noted 

that it has focused on addressing information technology 

control issues that were identified in prior-year OIG 

FISMA audits. The Department stated that it has 

continued to implement a comprehensive set of solutions 

that strengthen the overall cybersecurity of its networks, 

systems, and data. 

The Department stated that it had taken actions to 

improve cybersecurity across the five security functions. 

Examples of actions identified by the Department within 

each area include the following.

 Identify. The Department stated that it implemented 

the use of a risk scorecard as a risk management 

tool and established a quantitative methodology 

for identifying, analyzing, and managing systemlevel cybersecurity risks. The Department stated 

that the risk scorecards are used to perform regular 

framework-based risk assessments to identify security 

gaps and opportunities to enhance the Department’s 

cybersecurity capabilities and better protect its 

network assets and data.

 Protect. The Department stated that it had provided 

three cybersecurity training courses and had also 

executed six simulated phishing exercises in FY 

2018. The Department believed that these exercises 

strengthened its ability to reduce risks to systems and 

information through modified user behavior and 

improved resilience to spear phishing, malware, and 

drive-by attacks.

 Detect. The Department stated that it completed 

acquisitions that included a database scanning tool 

and a Security Information Event Management 

solution. The Department also stated that it adjusted 

the network access control solution to further limit 

opportunities for potential malicious activity to 

occur and continued its work with the Department 

of Homeland Security to implement Continuous 

Diagnostics and Mitigation tools within its primary 

network infrastructure.

 Respond. The Department stated that it had 

increased forensics and vulnerability management 

capabilities and had reduced the turnaround time 

for security analysis through the acquisition and 

implementation of additional tools and hardware. 

The Department stated that multiple improvements 

in security reporting were also implemented to 

provide a quick view of activity statuses and security 

posture, including an improved Chief Information 

Officer weekly report.

 Recover. The Department stated that it implemented 

a new enterprise cybersecurity offering to system 

stakeholders that focused on testing system 

contingency plans and the incident response processes.
96

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

What Needs to Be Done

The Department reported 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, 

identity and access management, and information 

security continuous monitoring. 

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 information technology security 

deficiencies, continue to provide mitigating controls for 

vulnerabilities, and implement planned actions to correct 

system weaknesses.

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: student financial assistance 

program participants and grantees. 

OVERSIGHT AND MONITORING—

STUDENT FINANCIAL ASSISTANCE 

PROGRAM PARTICIPANTS 

Why This Is a Challenge

The Department must provide effective oversight and 

monitoring of participants in the student financial 

assistance 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. 

In FY 2019, FSA expects to provide $129.5 billion in 

new Federal student aid grants and loans (excluding 

Direct Consolidation Loans) to almost 11.4 million 

postsecondary students and their families. 

The growth of distance education has added to the 

complexity of the Department’s oversight of student 

financial assistance 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 student financial assistance 

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 student financial 

assistance program participants. 

Progress in Meeting the Challenge

The Department stated that it has implemented robust 

oversight and monitoring processes for schools, lenders, 

servicers, guaranty agencies, and accrediting agencies. 

The Department further stated that FSA’s process for 

oversight and monitoring includes performing program 

reviews, reviewing and resolving annual compliance 

audits and financial statements submitted by program 

participants to ensure that these participants are 

administratively capable and financially responsible, and 

conducting certification activities to ensure that program 

participants continue to be eligible to participate in the 

student aid programs. 

The Department stated that the Next Generation 

Federal Student Aid transformation will bring significant 

improvements to FSA’s capabilities to monitor the 

performance of servicing and collections vendors 

in addition to monitoring servicing and collections 

performance generally. As part of this initiative, FSA will 

implement a business intelligence platform designed to 

capture and report on performance metrics, which will 

include vendor contract performance metrics and data. 
97

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018 | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

What Needs to Be Done

While the Department stated that it has implemented 

robust oversight and monitoring processes, our 

audits and investigations involving student financial 

assistance programs continue to identify instances of 

noncompliance and fraud, as well as opportunities for 

FSA to further improve its processes. The Department 

should enhance its oversight of student financial 

assistance 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. 

Overall, the Department needs to ensure that its 

efforts to better coordinate oversight result in effective 

processes to monitor student financial assistance 

program participants and reduce risk. It should work 

to ensure that its program review and compliance audit 

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. 

Our audits and investigations of student financial 

assistance program participants and audits of the 

Department’s related oversight and monitoring processes 

will continue to assess a wide variety of effectiveness and 

compliance elements. This area remains a management 

challenge given our continued findings in this area. 

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 more than 18,300 public school 

districts and 55 million students attending more than 

98,000 public schools and 34,000 private schools. Key 

programs administered by the Department include the 

Title I program, which under the Department’s FY 

2019 budget appropriation would deliver more than 

$15.8 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 more than $12.3 billion to help States and 

school districts meet the special educational needs of 6.9 

million students with disabilities. 

OIG work has identified a number of weaknesses in 

grantee oversight and monitoring. These involve local 

educational agency and State educational agency control 

issues, fraud relating to education programs, fraud 

perpetrated by State and local education agency and 

charter school officials, and internal control weaknesses in 

the Department’s oversight processes. 

Progress in Meeting the Challenge

The Department stated that is it working to maximize the 

value of grant funding by applying a risk-based, datadriven framework that balances compliance requirements 

with demonstrating successful results for the American 

taxpayer. The Department noted that there is significant 

inherent risk that State educational agencies, local 

educational agencies, and grant recipients may not always 

comply with financial or programmatic requirements, 

thereby negatively impacting program outcomes. The 

Department stated that it continues to take a number of 

actions to manage this risk and support State and local 

efforts, as well as postsecondary agencies and institutions, 

to improve outcomes. The Department’s new Strategic 

Plan includes key objectives and strategies focused on 

providing greater support to grantees through a number 

of ways, including flexibility, technical assistance, 

partnership, and dissemination of evidence.

The Department also stated that it continues to develop 

improved strategies to oversee and monitor grant 

recipients. According to the Department, one of these 

strategies is increasing the expertise of program staff 

to provide effective monitoring and oversight. The 

Department stated that its Risk Management Service 

developed and offered multiple courses covering basic to 

advanced strategies and resources to monitor formula and 

discretionary grantees. The Department has also focused 

on improving its technical support processes. 

The Department reported accomplishments in grantee 

oversight and monitoring across multiple offices. As 

examples, the Department reported the following.

 The Office of State Support implemented a 

performance review system designed to provide 

effective performance management and support 

to State educational agencies in administering and 

leveraging grant programs that include Title I, Part A; 

Title II, Part A; and Title III. 
98

OTHER INFORMATION | OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

 The Office of Elementary and Secondary Education 

increased the number of engagements in its fiscal 

monitoring pilot, which is in its second year, and 

successfully increased focus on improving grantee 

financial management. 

 The Office of Special Education and Rehabilitative 

Services and the Office of Elementary and Secondary 

Education collaboratively planned and hosted two 

major public events to provide States with technical 

assistance on assessment topics and implementing the 

Every Student Succeeds Act.

 Multiple offices also routinely collaborate in 

monitoring activities, focusing on areas such as 

assessments, accountability, and data reporting. 

What Needs to Be Done

The Department continued to report progress in 

enhancing its grantee oversight processes, citing 

numerous actions it had taken to address risks and 

improve outcomes across multiple program offices. The 

Department should periodically assess the results of these 

efforts, identify the most promising approaches, and 

determine whether these best practices can be effectively 

applied in other program offices. 

The Department should also continue its efforts to offer 

common training, encourage effective collaboration 

and communication across program offices, and take 

steps to ensure that its program offices are consistently 

providing effective risk-based oversight of grant recipients 

across applicable Federal education programs. Given 

the flexibilities offered by the Every Student Succeeds Act, 

the Department needs to ensure that its monitoring 

approaches support State and local efforts while providing 

effective oversight of financial stewardship and ensuring 

progress towards positive program outcomes. 

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.

The Department’s oversight and monitoring of grantees 

remains a management challenge given our continued 

findings in this area. 

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 and 

at State and local educational agencies. 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 acknowledged that there is significant 

inherent risk associated with the quality of data reported 

to the Department by grant recipients. However, the 

Department reported that it is committed to a number 

of actions to strengthen the quality, accessibility, and 

use of education data. The Department believes that 

its efforts to strengthen its data life cycle management, 

governance, and quality framework will help ensure 

that data the Department uses for decision-making are 

accurate and reliable. 

The Department stated that it developed a tool to track 

data quality concerns and State responses to datarelated questions that contributed to the School Year 

2015–16 Assessment, Adjusted Cohort Graduation 

Rate, and Consolidated State Performance Report data 

quality follow-up efforts. The Department tracks data 

quality findings through multiple review cycles with 

input from States and data stewards. The Department 

further reported that the Office of Elementary and 

Secondary Education implemented a process to 

track Consolidated State Performance Report data 

quality follow-up and streamlined the process to load 

Consolidated State Performance Report data quality 

findings into a main repository. 

The Department reported that it continues to work 

in other areas to improve the data management and 

verification process and better mitigate the risk that the 

Department might unknowingly accept or use inaccurate 

data. Notably, the Department plans to leverage single 
99

OFFICE OF INSPECTOR GENERAL’S MANAGEMENT CHALLENGES FOR FY 2018 | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

audits to help assess grant recipient data quality. The 

Department is working with OMB on language for the 

compliance supplement that would add focus to the 

review of grant recipients’ internal controls that support 

the quality of performance data submitted to the 

Department. The Department believed that this would 

better ensure that data reported by States are accurate 

and reliable.

What Needs to Be Done

The Department’s efforts to improve the overall quality 

of data that it collects and reports remain important 

to its program management and reporting. While 

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 effort to promote common strong 

practices across its program offices is an important 

step to improving data quality. In addition, efforts to 

strengthen data certification statements and to perform 

outreach 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 follow 

through on its plans to leverage single audits to help 

assess grant recipient data quality.
100 FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 76 and the Department’s management 

assurances on page 16.

SUMMARY OF FINANCIAL STATEMENT AUDIT

Audit Opinion: Unmodified

Restatement: No

Material Weaknesses Beginning Balance New Resolved Consolidated Ending Balance

Total Material Weaknesses 0 1 0 0 1

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 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 101

PAYMENT INTEGRITY

I. PAYMENT REPORTING

Office of Management and Budget (OMB) 

Memorandum M-18-20 defines an improper payment 

as any payment that should not have been made or 

that was made in an incorrect amount under statutory, 

contractual, administrative, or other legally applicable 

requirements. Incorrect amounts are overpayments 

or underpayments that are 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 should also be considered 

an improper payment.

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 maintains 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.

DESCRIPTION OF RISK-SUSCEPTIBLE 

AND HIGH-PRIORITY PROGRAMS 

In FY 2018, 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 agency financial report (AFR) 

for more information. Details on improper payment 

estimates and root causes for both programs are included 

within the Improper Payment Estimates, Payment 

Reporting Root Cause Categories, and Improper 

Payment Corrective Actions sub-sections that follow and 

in Section VII.

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. 
102

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF 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 nonstatistical sampling and 

estimation methodology to estimate the improper payment 

rate for the Pell Grant and Direct Loan programs in FY 

2018. Please refer to Section VII, Sampling and Estimation 

Methodology, for additional details about the methodology 

and its statistical limitations. 

The Department’s nonstatistical methodology was 

revised in FY 2017 to address volatility issues, as 

described further below in Section VII, Sampling 

and Estimation Methodology, but imprecision and 

volatility in the improper payments estimates continue 

that limit the ability to establish accurate out-year 

reduction targets. Accordingly, reduction targets were 

set to the current year improper payment percentages. 

The Department is implementing a statistically valid 

methodology in FY 2019 to improve the accuracy of the 

improper payment estimates.

Readers can obtain more detailed information on 

improper payments and all of the information reported 

in the past AFR at https://paymentaccuracy.gov.

The source of the FY 2018 Pell Grant and Direct Loan outlay amounts is Federal Student Aid (FSA)’s Financial Management System (FMS).
103

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Figure 17, FY 2018 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 2018 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 Internal Revenue Service (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 $ 2,223.52 96.58% $ 78.84 3.42%

Direct Loans $ 3,537.97 94.27% $ 214.92 5.73%

Total $ 5,761.49 95.15% $ 293.76 4.85%

Table 3. FY 2018 Improper Payments for Risk-Susceptible Programs
104

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 2018 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 

June 2018 update to OMB Circular A-123, Appendix C (OMB Memorandum M-18-20). 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 information 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 FSA programs. The office establishes and maintains systems and procedures to support the 

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

100–300 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 noncompliance.
105

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

The corrective actions listed below are specific to the root causes of improper payments identified from FY 2018 improper 

payment fieldwork.

Table 4. Corrective Actions—Root Cause Category

IPIA ERROR 

CAUSE

ROOT CAUSE 

CATEGORY CORRECTIVE ACTIONS1 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 August 20, 2018, FSA published the 2019–2020 EFC Formula Guide. The Guide 

includes EFC worksheets and tables for the 2019–2020 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 2020–2021 Guide with updates to address any 

changes to the formulas and to clarify existing guidance. 

In FY 2018, the FSA Training Conference for Financial Aid Professionals was held 

from November 28 to December 1, 2017. 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 2018, FSA addressed topics related to incorrect 

awards based on EFC. Over 2,000 unique schools registered for the FY 2018 

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

160 Foreign School officials attended from countries all over the world. Also, 26 percent 

of attendees were first-time attendees. The session recordings are publicly available. 

In FY 2019, 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 2018–2019 Handbook includes a volume about 

Student Eligibility, including eligibility for program funds based on EFC. The Handbook 

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

FSA will publish an updated volume for 2019–2020, 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 the spring of 2018. In FY 2019, FSA will again update the FSA 

Assessments to help address incorrect awards based on EFC.

FSA also offers a variety of free training, including Fundamentals of Federal Student 

Aid Administration training workshops, required when schools apply for initial 

participation in the Federal Student Aid programs and for a variety of other reasons. 

These workshops are also open to anyone who wishes to attend. In FY 2019, FSA 

will hold 4.5 day in-person training workshops at the Department’s 11 regional training 

facilities. FSA also offers FSA Coach, online self-paced training on the concepts, 

processes and systems to properly administer Federal Student Aid programs, along 

with a suite of other e-training available via https://fsatraining.info/. Training is focused 

on specific topics of interest such as those related to correctly awarding funds based 

on EFC. In FY 2018, FSA published updated training content. In FY 2019, FSA will 

continue to update training content to help financial aid professionals with the 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 28, 2018, 

the Department published an article about how to fill out the FAFSA form when there is 

more than one child in college, which may impact EFC. The Department will continue 

to update the blog to address topics such as incorrect awards based on EFC.

In FY 2019, FSA will 

publish an updated 

EFC Formula Guide for 

award year 2020–2021. 

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018.

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

incorrect awards based 

on EFC.

In FY 2019, FSA 

will update the FSA 

Assessments to help 

address incorrect 

awards based on EFC.

In FY 2019, FSA will 

publish updated free 

training content.

In FY 2019, the 

Department will 

maintain its blog, 

publishing additional 

articles which address 

topics such as incorrect 

awards based on EFC. 
106

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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.

In FY 2018, FSA completed 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. In FY 2019, FSA will continue to refine the 

verification selection process. As with prior years’ verification selection, data-based 

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

of the 2019–2020 FAFSA applicants with the highest statistical probability of error and 

the impact of such error on award amounts.

In FY 2018, FSA published an updated listing of FAFSA information schools and 

applicants may be required to verify for the 2019–2020 award year. This notice was 

published in the Federal Register on March 28, 2018. In FY 2019, FSA will 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. 

From November 28 to December 1, 2017, 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 professional judgement and verification, and a session 

on institutional resolution of conflicting information between the 2017–2018 and 

2018–2019 FAFSAs. The session recordings are publicly available. In FY 2019, 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 2018, FSA published a 2018–2019 

Verification Guide as part of the 2018–2019 FSA Handbook. The Guide was updated 

as of December 2017. The updates for 2018–2019 include updates to address 

changing requirements, and clarify existing requirements. For FY 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. 

Questions and answers were updated in FY 2018 to help clarify verification 

requirements. FSA will continue to update the frequently asked questions and 

answers, if updates are identified.

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

Assessment, part of the FSA Assessments that help schools with compliance and 

improvement activities. The Verification Assessment, updated in May 2018, 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, and other e-training. For FY 2019, FSA will publish updated training 

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

exercises and self-assessments to help financial aid professionals with the mastery 

of the knowledge and skills needed to properly perform verification.

In FY 2019, 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. 

In FY 2019, FSA will 

publish an updated 

listing of FAFSA 

information schools 

and applicants may be 

required to verify for the 

2019–2020 award year.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA 

will publish the 

2019–2020 Verification 

Guide, including 

updated content that 

addresses verification 

deficiencies. 

In FY 2019, FSA will 

publish updates to 

questions and answers 

about verification 

requirements to its 

website, if identified.

In FY 2019, FSA will 

update the Verification 

Assessment to help 

address verification 

deficiencies. 

In FY 2019, FSA will 

publish updated free 

training content related 

to verification. 
107

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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. The IRS DRT remains 

the fastest, most accurate way to input tax return information into the FAFSA form. 

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 expanded the population 

available to use the tool to include amended tax returns. Additionally, the data 

transferred from the IRS was 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 (IFAP) urging institutions to promote the use of the IRS 

DRT. 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. The impact of efforts to promote use of the IRS 

DRT is also assessed through reporting of IRS DRT usage via paymentaccuracy.

gov. 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.

The Department is also coordinating with the Treasury Department and OMB to 

pursue legislation that would provide an exemption to the IRS Tax Code Section 

6103 that would further streamline FSA’s ability to receive and verify applicants’ and 

borrowers’ income data. The Department expects this to have a meaningful impact on 

improper payments, reduce burden on applicants and schools, and reduce burden on 

borrowers, helping them avoid delinquency and default.

Given the importance 

of IRS DRT usage in 

preventing misreported 

income, IRS DRT 

usage is reported on 

paymentaccuracy.gov

for the Pell Grant and 

Direct Loan programs. 

The usage results will 

be posted by the end of 

November, 2018.

Exemption to the IRS 

Tax Code Section 

6103 is pending 

legislative changes.

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 COA.

From November 28 to December 1, 2017, 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 2018 Training Conference included 

several sessions related to processing of funds during normal operations. The 

session recordings are publicly available. In FY 2019, 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 2018–2019 Handbook includes volumes about Calculating 

Awards & Packaging, and Processing Aid and Managing FSA Funds. These volumes 

provide examples and guidance about processing of funds during normal operations. 

FSA will publish updated volumes for 2019–2020.

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

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

with compliance and improvement activities. The Fiscal Management Assessment 

and Student Eligibility Assessment, updated in February 2018 and June 2018, 

respectively, 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, and other e-training. For FY 2019, FSA will publish 

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

interactive exercises and self-assessments to help financial aid professionals with the 

mastery of the knowledge and skills needed to process funds during normal operations.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA 

will publish the 

2019–2020 FSA 

Handbook, including 

updated content that 

addresses processing 

of funds during 

normal operations.

In FY 2019, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2019, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations.
108

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 28 to December 1, 2017, 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 2018 Training Conference included 

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

Determining Academic Calendars (Standard, NonStandard, and NonTerm); and 

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

available. In FY 2019, 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 2018–2019 Handbook includes a Student Eligibility volume, 

updated in May 2018, 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 2019–2020.

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

Management and Student Eligibility Assessment, part of the FSA Assessments that 

help schools with compliance and improvement activities. The Fiscal Management 

Assessment and Student Eligibility Assessment, updated in February 2018 and 

June 2018, respectively, 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, and other e-training. For 

FY 2019, FSA will publish updated training content that addresses annual updates 

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

financial aid professionals with the mastery of the knowledge and skills needed to 

process student data during normal operations.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

processing of student 

data during normal 

operations.

In FY 2019, FSA will 

update the Fiscal 

Management and 

Student Eligibility 

Assessments.

In FY 2019, FSA 

will publish updated 

free training content 

related to processing 

of funds during normal 

operations.
109

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 28 to December 1, 2017, 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 2018 Training Conference included several sessions related to student 

and institutional eligibility: Student Eligibility Requirements; Maintaining Your Institutional 

Eligibility; and Pell LEU & Subsidized Usage Limit Applies (SULA) Adjustments for 

Transfer Students Coming from Closed Schools. The session recordings are publicly 

available. In FY 2019, 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 2018–2019 Handbook includes volumes for Student Eligibility 

and School Eligibility and Operations. These volumes provide examples and guidance 

about student and school eligibility. FSA will publish updated volume for 2019–2020.

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

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

with compliance and improvement activities. The Student Eligibility Assessment and 

Institutional Eligibility Assessment, both updated in June 2018, 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, and other e-training. For 

FY 2019, FSA will publish updated training content that addresses annual updates for 

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

aid professionals with the mastery of the knowledge and skills needed to award funds 

to eligible students attending eligible programs and institutions.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018.

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including the Student 

Eligibility and School 

Eligibility and 

Operations volumes.

In FY 2019, FSA 

will update the 

Student Eligibility and 

Institutional Eligibility 

Assessments.

In FY 2019, FSA will 

publish updated free 

training content 

related to awarding 

funds to eligible 

students attending 

eligible programs 

and institutions. 

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 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 28 to December 1, 2017, 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 2018 Training Conference included 

sessions related to SAP. The session recordings are publicly available. In FY 2019, 

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 2018–2019 Handbook includes a Student Eligibility volume, 

updated in May 2018, which includes a section devoted to SAP. This volume provides 

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

volume for 2019–2020.

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

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

with compliance and improvement activities. The Satisfactory Academic Progress 

Assessment, updated in February 2018, 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, and other e-training. For FY 2019, FSA will publish updated training 

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

exercises and self-assessments to help financial aid professionals with the mastery 

of the knowledge and skills needed to monitor SAP.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated SAPrelated guidance.

In FY 2019, FSA will 

update the Satisfactory 

Academic Progress 

Assessment.

In FY 2019, FSA will 

publish updated free 

training content related 

to SAP via FSA Coach.
110

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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 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 28 to December 1, 2017, 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 2018 Training Conference included 

sessions devoted to incorrectly calculated return records: Return to Title IV Funds 

(R2T4): Basic Principles; R2T4 Funds: Advanced Concepts; R2T4 and CreditHour Programs; and SAP and Return to Title IV Funds (R2T4) Funds. The session 

recordings are publicly available. In FY 2019, 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 2018–2019 Handbook includes a volume dedicated to 

Withdrawals and the Return of Title IV Funds. 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 2019–2020.

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

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

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

May 2018, 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, and other e-training. For FY 2019, FSA will publish 

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

interactive exercises and self-assessments to help financial aid professionals with the 

mastery of the knowledge and skills needed to correctly calculate return records.

FSA will hold the 

FY 2019 FSA 

Training Conference 

for Financial Aid 

Professionals from 

November 27 to 

November 30, 2018. 

In FY 2019, FSA will 

publish the 2019–2020 

FSA Handbook, 

including updated 

content that addresses 

withdrawals and the 

return of Title IV funds.

In FY 2019, FSA will 

update the Return 

of Title IV Funds 

Assessment.

In FY 2019, FSA will 

publish updated free 

training content related 

to return of Title IV 

funds via FSA Coach.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Incorrect 

processing 

of Loan 

Verification 

Certificate 

(LVC)

In FY 2018, of the 120 Direct Loan Consolidation payments sampled, 16 improper 

payments were identified due to incorrect processing of LVCs, a reduction from 

17 in the prior year. These improper payments represent 0.01% of the Direct Loan 

improper payment estimate. FSA will initiate an assessment of the feasibility and 

effectiveness of the servicers implementing additional levels of quality assurance over 

processing of LVCs. 

FSA will meet with 

the Title IV Additonal 

Servicers (TIVAS) in 

FY 2019. 

In FY 2019, FSA will 

initiate an assessment 

of the feasibility and 

effectiveness of 

servicers implementing 

additional levels of 

quality assurance over 

processing of LVCs.

Administrative 

or Process 

Errors by Other 

Party (Identified 

from FFEL to 

Direct Loan 

Consolidations)

Documentation 

provided by 

servicer

Not applicable; 

no Direct Loan 

Consolidation 

improper 

payments were 

identified in 

FY 2018 due 

to insufficient 

documentation.

In FY 2018, FSA 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 2018, FSA also sent a communication to the TIVAS reiterating 

the need to maintain sufficient documentation to support FFEL to Direct Loan 

Consolidations were made properly. In FY 2018, of the 120 Direct Loan Consolidation 

payments sampled, no improper payments were identified due to lack of sufficient 

supporting documentation, a reduction from two in the prior year. 

No additional corrective actions are identified for FY 2019 as no Direct Loan 

Consolidation improper payments due to insufficient documentation were 

identified in FY 2018.

In FY 2019, FSA will 

provide the Direct Loan 

Consolidation improper 

payment fieldwork 

checklist regarding 

documentation that 

must be maintained by 

the TIVAS.
111

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

Administrative 

or Process 

Errors by Other 

Party (Identified 

from Direct 

Loan Refunds)

Not applicable; 

no Direct 

Loan Refund 

improper 

payments 

were identified 

in FY 2018.

In FY 2018, FSA 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 2017 and FY 

2018, no improper payments were identified from review of a sample of Direct Loan 

Refund payments. 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 2019 as no Direct Loan Refund 

improper payments were identified in FY 2018.

In FY 2019, FSA will 

provide the Direct 

Loan Refund improper 

payment fieldwork 

checklist regarding 

documentation that 

must be maintained by 

the TIVAS.

1

 FSA does not attempt to quantify the reduction of the improper payment estimates in terms of percentage or amount due to these corrective actions. 

The quantification of results is not feasible due to the use of a nonstatistical alternative estimation methodology.
112

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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.

In FY 2018, the Department identified $34.84 million 

in improper payments and recovered $45.06 million in 

improper payments (or 129 percent1

), as depicted in the 

graph below. For detailed information on identified and 

recovered 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), as 

amended by the Bipartisan Budget Act of 2013 and the 

Federal Improper Payments Coordination Act of 2015

(FIPCA). During FY 2018, 1,382,275 payments, totaling 

$161.3 billion, were reviewed for possible improper 

payments through the DNP Portal screening, which 

includes the Death Master File and the System for Award 

Management File. The Department continues to validate 

that potential improper payments identified through this 

screening process were properly adjudicated and reported 

to Treasury timely.

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 

1

 Improper payments identified and recaptured in FY 2018 include 

payments that were made prior to FY 2018, which leads to a 

percentage greater than 100 percent.
113

PAYMENT INTEGRITY | OTHER INFORMATION

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

schools and students. For example, the Internal Revenue 

Code does not currently permit a database match with 

the IRS. Such a match 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® form.

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 FY 2018 AFR reporting, the Department obtained 

approval from OMB to use a nonstatistical estimation 

methodology, formerly referred to as an alternative 

methodology, for estimating improper payments for the 

Pell Grant and Direct Loan programs. The methodology 

is a nonstatistical estimation methodology as it has 

statistical limitations, including reliance on nonrandom 

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’ selfreported income, identifying conflicting applicant data, 

student academic performance, and eligibility on the 

disbursed funds for a sample of students in each review. 

The Department 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 nonstatistical methodology 

to a level that would meet the precision rate prescribed 

by OMB. The Department is implementing a statistically 

valid methodology in FY 2019. 

On June 29, 2018, the Department submitted to OMB 

for approval updates to the nonstatistical sampling 

plan and estimation methodology. These updates to the 

methodology incorporate self-identified enhancements. 

OMB approved the Department’s updates to the 

nonstatistical sampling plan and estimation methodology 

on August 15, 2018. The methodology is described in 

detail on the Department’s improper payments website.

The Department recognizes that its nonstatistical 

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 

lower-risk 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 

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.

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 and activity 

that is not reporting an improper payments estimate. 

In FY 2018, the Department did not conduct any risk 

assessments, as all programs and activities were previously 

assessed for risk in either FY 2017 or FY 2016. 
114

OTHER INFORMATION | PAYMENT INTEGRITY

FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

ADDITIONAL COMMENTS

Enhancing Payment Integrity

In support of the Department’s payment integrity 

initiative, the Department continues to develop the 

Continuous Controls Monitoring System (CCMS), 

which detects anomalies in grants payment data. Case 

management files for the anomalies are established 

within the application for follow-up investigation by the 

Department’s grants program offices to validate improper 

payments and determine root causes. Additionally, the 

Data Integrity and Financial Controls Group within 

the Office of the Chief Financial Officer continues 

working with other internal control teams within the 

Department to implement recommendations from its 

Payment Integrity Workgroup (PIWG), whose objective 

was to address identified gaps and strengthen the internal 

control process. Both efforts reflect the Department’s 

recognition of the critical importance that payment 

integrity plays in demonstrating financial stewardship to 

the American taxpayer.

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 2018, 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.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 115

FRAUD REDUCTION REPORT

The Department continues to participate actively 

with OMB and other agencies in the governmentwide workgroup that is collaborating on an 

implementation plan for the Fraud Reduction and Data 

Analytics Act (FRDAA) of 2015. The Department will 

continue to work with OMB to implement the FRDAA.

The Department recognizes the challenges that often 

surround fraud risk management and is taking action to 

address each challenge. These challenges include limited 

resources to conduct fraud risk management activities 

and difficulties in definitively separating fraud from other 

negative outcomes.

The Department is exploring ways to refine or enhance 

its business processes to be in a better position to define, 

deter, detect, and take action on fraud. For Title IV 

programs, Federal Student Aid (FSA) has established 

a Fraud Risk Group (FRG) within its Enterprise Risk 

Management Office to build capacity and expertise for 

and to dedicate resources to fraud risk identification 

and mitigation. In 2018, responsibility for receiving, 

processing, and taking action on fraud referrals from the 

Department’s Office of the Inspector General (OIG) was 

transferred from the Finance Office to FRG. 

FRG launched a new initiative to implement workflow 

and case management capabilities to perform 

analysis of all OIG fraud referrals within the existing 

Customer Engagement Management Systems (CEMS) 

infrastructure. This will enable more comprehensive 

analysis across all OIG fraud referrals and provide 

better tracking of referrals and possible recoveries 

of resultant improper payments. This common and 

interactive case processing tool will also reduce fraud 

review/case processing time and provide analytics to 

allow better fraud detection and prevention. FSA is 

also exploring ways to leverage data analytics better to 

detect and combat fraud in operations. Additionally, the 

Department has catalogued internal controls related to 

fraud prevention and detection, to include 45 detective 

and 103 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.
116 FY 2018 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 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 FY 2018 Change (FY 2015 Baseline—FY 2018)

Square Footage 1,548,425 1,382,553 (165,872)

2

 The only building change for FY17 and FY18 was the OIG satellite office in Puerto Rico. In August, 2017, it was relocated from Plaza Scotia Bank 

Building to Degetau FB & Ruiz-Nazario Courthouse. Therefore, the total usable of 1,382,553 applies for both FY17 and FY18.
FY 2018 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 117

Table 6.

CIVIL MONETARY PENALTY ADJUSTMENT FOR INFLATION

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, 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/2018/01/16/2018-00614/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) 20-Apr-17 15-Jan-18 $37,601 

Failure to provide information regarding teacherpreparation programs20 USC 

1022d(a)(3) 20-Apr-17 15-Jan-18 $31,320

Violation of Title IV of the HEA 20 USC 1082(g) 20-Apr-17 15-Jan-18 $55,907

Violation of Title IV of the HEA 20 USC 

1094(c)(3)(B) 20-Apr-17 15-Jan-18 $55,907

Failure to disclose information to minor children and parents 20 USC 

1228c(c)(2)(E) 20-Apr-17 15-Jan-18 $1,650

Improper lobbying for government grants and contracts 31 USC 

1352(c)(1) 20-Apr-17 15-Jan-18 $19,639 to $196,387

False claims and statements 31 USC 3802(a)(1) 20-Apr-17 15-Jan-18 $11,181
118 FY 2018 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 

THE GRANTS OVERSIGHT AND NEW EFFICIENCY (GONE) 

ACT OF 2016

Department succeeded in closing out 100 percent of the 

required grants and cooperative agreements during FY 

2018, as reflected below.

The Department continues to use the GONE Act’s 

methodology and is integrating a financial monitoring 

curriculum into the Department’s grants training, 

updating our grants management system and updating the 

policy Handbooks for discretionary and formula grants.

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 - - -

Number of Grants/Cooperative Agreements 

with Undisbursed Dollar Balances - - -

Total Amount of Undisbursed Balances - - -

Table 7.