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.