114 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

PAYMENT INTEGRITY

I. PAYMENT REPORTING

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 payment 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 internal 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 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 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.

To further promote payment integrity, the Department 

continues to develop its Payment Integrity Monitoring 

Application, which detects anomalies in grants payment 

data. Case management files for payment anomalies 

are established within the application for follow-up 

investigation by the Department’s grants program officials 

to validate improper payments and determine root causes. 

Additionally, the Department continues to develop its 

internal control framework to address gaps, strengthen 

internal control processes, and align assessments with 

enterprise risk management. Both efforts reflect the 

Department’s recognition of the critical importance 

that payment integrity plays in demonstrating financial 

stewardship to the American taxpayer.

Readers can obtain more detailed information on 

improper payments at https://paymentaccuracy.gov.

DESCRIPTION OF RISK-SUSCEPTIBLE 

AND HIGH-PRIORITY PROGRAMS 

In FY 2019, the Pell Grant and Direct Loan programs 

continued to be susceptible to significant improper 

payments and remained OMB-designated high priority 

programs. Also, in FY 2019, the Department began 

monitoring outlays of grant programs receiving funding 

for disaster relief. According to OMB Memorandum 

M-18-14, Implementation of Internal Controls and Grant 

Expenditures for the Disaster-Related Appropriations, 

any disaster-related program with $10 million or more 

in outlays in a given fiscal year is deemed susceptible 

to significant improper payments. The Department 

identified two programs that met this criterion: the 
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PAYMENT INTEGRITY | OTHER INFORMATION

Temporary Emergency Impact Aid for Displaced Students 

(Emergency Impact Aid) and Immediate Aid to Restart 

School Operations (RESTART) programs. 

The Department continues to place additional emphasis to 

ensure payment integrity and minimize improper payments 

in these important programs as required by OMB guidance. 

Details on improper payment estimates, root causes, and 

corrective actions for the programs are included within the 

Improper Payment Estimates, Payment Reporting - Root 

Cause Categories, and Improper Payment Corrective 

Actions sub-sections that follow.

PELL GRANT 

The Pell Grant program, authorized under Title IV 

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

need-based grants to low-income undergraduate and 

certain post-baccalaureate students to promote access to 

postsecondary education. 

DIRECT LOAN 

The Direct Loan program, added to HEA in 1993 by 

the Student Loan Reform Act of 1993, authorizes the 

Department to make loans through participating 

schools to eligible undergraduate and graduate 

students and their parents.

TEMPORARY EMERGENCY IMPACT AID FOR 

DISPLACED STUDENTS

The Temporary Emergency Impact Aid for Displaced 

Students (Emergency Impact Aid) program awards 

emergency impact aid funding to State educational 

agencies (SEAs). SEAs provide subgrants to local 

educational agencies (LEAs) to reimburse the costs of 

educating students enrolled in public schools (both 

traditional and charter) and non-public elementary and 

secondary schools, who were displaced by a covered 

disaster or emergency.

IMMEDIATE AID TO RESTART 

SCHOOL OPERATIONS 

The Immediate Aid to Restart School Operations 

(RESTART) program awards grants to eligible SEAs 

to assist eligible LEAs and non-public schools with 

expenses related to the restart of elementary schools 

and secondary schools in areas impacted by a covered 

disaster or emergency. Funds may be used to assist 

school administrators and personnel in restarting school 

operations, re-opening schools, and reenrolling students.

IMPROPER PAYMENT ESTIMATES

In FY 2019, the Department used statistically valid and 

rigorous sampling and estimation methodologies to 

estimate the improper payment rates for the Pell Grant, 

Direct Loan, Emergency Impact Aid and RESTART 

programs. Please refer to Section VII, Sampling and 

Estimation Methodology, for additional details about 

these methodologies. 

In FY 2018, the Department collaborated with 

stakeholders to identify an approach to overcome 

previously identified challenges with implementing a 

statistically valid estimation methodology for the Pell 

Grant and Direct Loan programs, and in FY 2019, 

FSA implemented a new statistically valid and rigorous 

estimation methodology. This new methodology improves 

the accuracy of the improper payment estimates. The 

prior, non-statistical methodology relied on non-random, 

limited-size sampling of the 100-300 annual FSA Program 

Compliance reviews which target high-risk schools of the 

approximately 5,700 schools that receive Title IV aid. The 

new methodology implemented in FY 2019 is based on a 

larger, random sample of the universe of schools receiving 

Title IV aid. As this is the first year implementing the 

new methodology, modest reduction targets were set. The 

reduction target for the Pell Grant program is 2.22 percent 

and the reduction target for the Direct Loan program is 

0.51 percent. 

According to OMB guidance, reduction targets for 

programs are not expected to be published until a full 

baseline has been established and reported. Baselines for 

the Emergency Impact Aid and RESTART programs will 

not be established until the conclusion of a 24-month 

reporting cycle in FY 2020.

Readers can obtain more detailed information on 

reporting improper payment estimates in FY 2019 and 

prior years at https://paymentaccuracy.gov.
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OTHER INFORMATION | PAYMENT INTEGRITY

The FY 2019 Pell Grant estimates include results from the Free Application for Federal Student Aid (FAFSA®) Internal 

Revenue Service (IRS) Data Statistical Study which estimates Pell Grant improper payment rates based on a comparison 

between information reported by applicants on the FAFSA and income details reported to the IRS. Rates from the Study 

are included in the Pell Grant improper payment estimate as a proxy for improper payments associated with misreported 

income. This proxy of misreported income accounts for approximately 77% of the estimated FY 2019 Pell Grant 

improper payments.

 

The source of the FY 2019 Pell Grant and Direct Loan outlay amounts is FSA’s Financial Management System (FMS). The source of Emergency Impact Aid and 

RESTART outlay amounts is the Office of Finance and Operations (OFO)’s Grants Management System (G5). Emergency Impact Aid and RESTART outlays are 

taken from prior year program data. No improper payments were identified in FY 2019 for the RESTART program.
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Program Overpayments

(Dollars in Millions)

Overpayments

(%)

Underpayments

(Dollars in Millions)1

Underpayments

(%)

Unknown

(Dollars in Millions)2

Unknown

(%)

Pell Grants $380.04 58.82% $211.18 32.68% $54.92 8.50%

Direct Loans $199.34 41.26% $40.47 8.38% $243.33 50.36%

Emergency 

Impact Aid $3.87 100% $0 0% $0 0%

RESTART $0 0% $0 0% $0 0%

Total $583.25 51.47% $251.65 22.21% $298.25 26.32%

Table 5. FY 2019 Improper Payments for Risk-Susceptible Programs

1

 In FY 2019, Emergency Impact Aid’s estimated underpayments totaled just $39.50 (not in millions) resulting in an improper payment rate of <0.01%.

2

 For the Pell Grant and Direct Loan programs, “Unknown” improper payments include overpayments and underpayments where the exact amount of the 

overpayment and underpayment is unknown due to lack of supporting documentation maintained by third parties. 
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OTHER INFORMATION | PAYMENT INTEGRITY

Figure 22 and Figure 23 summarize the estimated amount of improper payments made directly by the Department and 

the amount of improper payments made by recipients of federal money. For additional details, please refer to the Payment 

Reporting – Root Cause Categories section. 

PAYMENT REPORTING - INSUFFICIENT OR LACK OF DOCUMENTATION

Of the $646.14 million and $483.14 million in estimated improper payments for the Pell Grant and Direct Loan programs, 

respectively, approximately 8.50% and 50.36%, respectively, are categorized as improper due to inability to discern whether 

the payment was proper as a result of insufficient or lack of documentation.

Documentation deficiencies for the Pell Grant and Direct Loan programs include but are not limited to inadequate tracking 

of attendance by schools, including inadequate tracking of students’ last date of attendance or withdrawal date, lack of 

other supporting eligibility documentation retained by schools, and lack of evidence to support a school completed required 

verification of information reported by an applicant on their FAFSA.

PAYMENT REPORTING - MONETARY LOSS, NON-MONETARY LOSS, AND UNKNOWN 

This section presents the portion of the improper payment estimates that are attributed to monetary loss, non-monetary 

loss, or unknown. Monetary loss, non-monetary loss, and unknown are defined by OMB. 

 Monetary loss to the Federal Government: An amount that should not have been paid and in theory should/could 

be recovered. 

 Non-monetary loss to the Federal Government: Either an underpayment or a payment to the correct recipient for the 

correct amount where the payment process fails to follow applicable regulation and/or statute. 

 Unknown: The estimated amount within the improper payment estimate that could be either proper or improper 

but the Department is unable to discern whether the payment was proper or improper as a result of insufficient or lack 

of documentation. 

The monetary loss, non-monetary loss, and unknown amounts reported in Table 6 are estimates. Not all monetary loss 

is recoverable. 
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Program Reporting Category Reporting Sub-Category Amount 

(Dollars in Millions)

Percentage of 

Improperly Paid 

Estimate (%)

Pell Grants

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $380.04 58.82%

Estimated Non-Monetary loss to the Government $211.18 32.68%

Estimated Unknown improper payments $54.92 8.50%

Total $646.14 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $380.04 58.82%

Direct Loan

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $189.03 39.13%

Estimated Non-Monetary loss to the Government $50.78 10.51%

Estimated Unknown improper payments $243.33 50.36%

Total $483.14 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $4.91 1.02%

Estimated Monetary loss Outside Agency Control $184.12 38.11%

Emergency 

Impact Aid

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $2.88 74.42%

Estimated Non-Monetary loss to the Government $.99 25.58%

Estimated Unknown improper payments $0.00 0.00%

Total $3.87 100.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $2.88 74.42%

RESTART

Monetary Loss, Non-Monetary 

Loss and Unknown

Estimated Monetary loss to the Government $0.00 0.00%

Estimated Non-Monetary loss to the Government $0.00 0.00%

Estimated Unknown improper payments $0.00 0.00%

Total $0.00 0.00%

Monetary Loss Control

Estimated Monetary loss Within Agency Control $0.00 0.00%

Estimated Monetary loss Outside Agency Control $0.00 0.00%

Table 6. FY 2019 Monetary and Non-Monetary Loss for Risk-Susceptible Programs
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OTHER INFORMATION | PAYMENT INTEGRITY

Of the estimated monetary loss for the Pell Grant and Direct Loan programs, the majority is outside of the agency’s 

control. As explained previously, 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. These “third-party” controls are 

outside of the Department’s operational control. Examples of root causes outside of the Department’s operational control 

are defined further in the following sections.

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 2019 were “Failure to Verify—Financial Data”, “Administrative or Process Errors Made by—Other Party” and 

“Insufficient Documentation to Determine” using categories of error as defined in 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, a school’s failure to perform or properly complete verification, the process by which 

schools confirm the accuracy of select data reported by students on their FAFSA, failure of schools to resolve conflicting 

information reported by applicants, and incorrect self-reporting of an applicant’s information that leads to incorrect awards 

based on Expected Family Contribution (EFC). Specific root causes associated with the “Administrative or Process Errors 

Made by—Other Party” category include, but are not limited to, credit balance errors; Satisfactory Academic Progress not 

achieved; student withdrawal deficiencies; disbursement of funds to ineligible recipients; disbursement of funds to students 

attending ineligible institutions, programs, or locations; incorrect disbursement amounts; disbursements in excess of 

students’ maximum eligibility; documentation deficiencies; improper use of funds; and processing errors at the servicer level. 

Specific root causes associated with the “Insufficient Documentation to Determine” category include, but are not limited 

to, inadequate tracking of attendance by schools, including inadequate tracking of students’ last date of attendance or 

withdrawal date, lack of supporting eligibility documentation retained by schools, and lack of evidence to support a school 

completed required verification of information reported by an applicant on their FAFSA.

1

 Improper payment estimates attributed to Insufficient Documentation to Determine are reported as overpayments in accordance with OMB reporting requirements.
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PAYMENT INTEGRITY | OTHER INFORMATION

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. FSA’s Program Compliance annually 

conducts approximately 100–300 Program Reviews of the approximately 5,700 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.

FSA’s Program Compliance monitors annual compliance audits of schools. A school that participates in any Title IV 

program must at least annually have a compliance audit of its administration of that program unless an allowable waiver 

or exemption has been granted or, for Single Audit filers, the Title IV programs (major program) have been determined 

low-risk. Independent auditors perform the compliance audits to monitor schools’ administration of FSA programs. If 

any deficiencies are identified, the school must develop a corrective action plan that addresses the audit report findings. 

Auditors are required to evaluate whether the school has taken appropriate corrective action to address findings and 

recommendations from prior audits. FSA’s Program Compliance also performs audit resolution. This includes reviewing 

and evaluating the effectiveness of a school’s corrective action and mitigation efforts for noted exceptions in audit reports.

Figure 25 below shows Emergency Impact Aid root causes for improper payments were attributed to “Administrative or Process 

Error Made by – State Agency” and “Failure to Verify – Other Eligibility Data”, also done at the SEA level. Overpayments for 

the Emergency Impact Aid program resulted in $0.98 million in estimated improper payments attributed to the “Failure to 

Verify – Other Eligibility Data” root cause and $2.89 million to the “Administrative or Process Error Made by – State Agency”. 

Estimated underpayments for Emergency Impact Aid totaled $39.50 (not in millions) and was attributed to the “Administrative 

or Process Error Made by – State Agency” root cause. Root Causes for improper payments include, but are not limited to, the 

program statutory design that specifically authorizes these types of occurrences. The timeline for dispersing the funds is short 

and the program statute allows for upward and downward adjustments to student counts as the data are reviewed through either 

monitoring or audits (even if that review period is beyond the date provided by the state for amending the application). State 

required audits identified issues in the data and funds were returned to the state based upon downward adjustments. 
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OTHER INFORMATION | PAYMENT INTEGRITY

Corrective 

Action Status (Including Planned or Actual Completion Dates)1 Root Cause Category

Pursue 

legislation that 

would provide 

an exemption 

to the IRS Tax 

Code Section 

6103 

Long-term. The Department is coordinating with the Treasury Department and OMB 

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

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

income data. FSA 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. Several bills have been introduced in Congress 

that would amend the Internal Revenue Code to allow IRS to disclose tax return 

information to authorized Department officials for purposes of determining eligibility 

for, and amount of, federal student financial aid. 

FSA does not have control over the completion date as this corrective action is 

dependent on the legislative process. The corrective action will be re-assessed at 

the end of FY 2020. Therefore, the planned completion date is tentatively set as 

September 30, 2020.

Misreported income – Information 

reported by an applicant on its FAFSA 

is used to calculate EFC. Schools use 

the EFC to determine federal student 

aid eligibility and financial aid award in 

accordance with Title IV requirements.

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.

Continue to 

utilize and 

promote the IRS 

Data Retrieval 

Tool (DRT)

On-going. The IRS DRT 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. 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. 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 reports from schools and IRS DRT users via annual surveys, usability 

studies, and the FSA Feedback System, among other mechanisms.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

Analyze 

verification data 

to inform the 

upcoming award 

year cycle

On-going. In FY 2019, 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. 

FSA also conducts a monthly review of the verification percentages to determine what 

percentage of applicants were selected for verification. Through this process, FSA 

verifies that the selection process is working as intended.

In FY 2020, 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 FSA to select for verification the 2020–2021 FAFSA applicants with the highest 

statistical probability of error and the impact of such error on award amounts.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

The corrective actions listed below are specific to the root causes of improper payments identified from FY 2019 improper 

payment fieldwork, and are tailored to reflect the unique processes, procedures, and risks involved with the Pell Grant and 

Direct Loan programs.

Table 7. Pell Grant and Direct Loan Improper Payment Corrective Actions—Root Cause Category

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 because this is FSA’s first year using a statistically valid estimation methodology. Therefore, there are no prior year results to 

compare against. Also, FSA has multiple corrective actions for several of the root causes.
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Publish an 

updated listing 

of FAFSA 

information 

schools and 

applicants may 

be required to 

verify 

Reoccurring (annually). FSA published an updated listing of FAFSA information 

schools and applicants may be required to verify for the 2020–2021 award year. 

This notice was published in the Federal Register on May 24, 2019. Reevaluating 

the FAFSA information schools and applicants may be required to verify helps target 

higher-risk areas while reducing the documentation burden on schools and students. 

In FY 2020, 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.

The planned completion date is June 30, 2020. The corrective action will be reassessed in FY 2020 and may be renewed, intensified, or expanded for FY 2021.

Misreported income – Information 

reported by an applicant on its FAFSA 

is used to calculate EFC. Schools use 

the EFC to determine federal student 

aid eligibility and financial aid award in 

accordance with Title IV requirements.

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.

Publish updates 

to questions and 

answers about 

verification 

requirements, if 

identified

On-going. FSA published questions and answers about verification on its website. 

Questions and answers were updated in FY 2019 to help clarify verification 

requirements. These questions and answers provide clarity on verification 

requirements, reducing the risk of verification deficiencies.

FSA will continue to update the frequently asked questions and answers, if updates 

are identified.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.
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Publish and 

deliver updated 

free training, 

guidance, and 

resources

Ongoing. The Department annually publishes and delivers updated free training, 

guidance, and resources. This content is annually updated, if not more frequently, 

to target the root causes of improper payments and other frequently identified 

compliance issues. These free training, guidance, and resources include the:

- FSA Training Conference for Financial Aid Professionals. From November 27 to 

November 30, 2018, 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. More than 2,000 unique schools registered for the conference. All 50 

states were represented as well as the U.S. territories to include Guam, Puerto 

Rico, and U.S. Virgin Islands. More than 200 Foreign School officials also attended 

from countries all over the world. The FY 2019 Training Conference included 

sessions related to the root causes of improper payments. The session recordings 

are publicly available. The FSA Training Conference also provides schools direct 

access to federal staff, and one-on-one time with subject matter specialists. In FY 

2020, FSA will again hold and promote the FSA Training Conference. 

- FSA Handbook. FSA annually updates and publishes the FSA Handbook for 

college financial aid administrators and counselors. The FSA Handbook includes 

an Application and Verification Guide, and Volumes on Student Eligibility, School 

Eligibility and Operations, Calculating Awards and Packaging, Processing Aid and 

Managing FSA Funds, and Withdrawals and the Return of Title IV Funds. Each 

volume provides examples and guidance to help schools appropriately administer 

federal student aid. 

- FSA Coach. FSA offers free 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. 

FSA annually updates training content to address annual updates for the new 

award year, provide interactive exercises and self-assessments, and target the 

root causes of improper payments and other frequently identified compliance 

issues. New for 2019, the Department launched the Financial Aid Administrator’s 

Tool Kit. The new FAA Tool Kit, included within FSA Coach, offers quick access 

to Federal Student Aid resources, reference guides, and training material, and is 

designed to assist financial aid professionals in administering the federal student 

aid programs in compliance with federal regulations. In addition to providing 

links to key FSA resources, the Tool Kit also includes short videos to assist with 

navigating several FSA products.

- FSA Assessments. FSA designed, in collaboration with financial aid professionals, 

FSA Assessments that help schools with compliance and improvement activities 

associated with each of the root causes of improper payments. The FSA 

Assessments contain links to applicable laws and regulations as well as guidance, 

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

- HomeRoom, the Department’s official blog. 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, including activities to help address the root causes of 

improper payments. For example, on September 10, 2019, the Department 

published an article about 7 Things You Need to Know Before You Fill Out the 

2020-21 FAFSA Form. 

FSA solicits input on the effectiveness of these training and resources, and invests in 

improving these critical sources of information to better serve program participants, as 

described above.

The planned completion date is September 30, 2020. The corrective action will be 

re-assessed at the end of FY 2020 and may be renewed, intensified, or expanded for 

FY 2021.

Multiple root causes: verification 

deficiencies; credit balance deficiencies; 

Satisfactory Academic Progress 

deficiencies; student withdrawal 

deficiencies; ineligible recipients; 

ineligible institutions, programs, 

or locations; incorrect amounts; 

documentation deficiencies; improper use 

of funds; maximum eligibility deficiencies; 

and misreported income.
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Initiate an 

assessment 

of the 

feasibility and 

effectiveness 

of servicers 

implementing 

additional 

levels of quality 

assurance over 

processing of 

Loan Verification 

Certificates 

(LVCs)

Completed. In FY 2019, FSA surveyed the Title IV Additional Servicers (TIVAS) 

and reviewed their Direct Loan Consolidation procedures. FSA identified a flawed 

automated TIVAS process which was causing improper payments. The process was 

revised to address the root cause of improper payments. This corrective action will 

eliminate improper payments associated with the flawed automated process.

The actual completion date was May 2019.

Incorrect processing of Loan Verification 

Certificates (LVCs)

Meet with 

the TIVAS 

to discuss 

incorrect 

processing of 

LVCs

Completed. In FY 2019, FSA met with the TIVAS to solicit ideas on how to best 

address incorrect processing of LVCs. No additional or alternative corrective actions 

were identified.

The actual completion date was September 12, 2019.

Update TIVAS 

Direct Loan 

Consolidation 

procedure

Completed. The TIVAS updated its Direct Loan Consolidation procedures to help 

mitigate the risk of Direct Loan Consolidation manual errors.

The actual completion date was September 24, 2019.

Incorrect Direct Loan Consolidation 

manual entry or oversight

Implement 

a new 

reconciliation 

process to 

mitigate 

the risk of 

incorrect Direct 

Loan Refund 

calculations

Completed. The new process was implemented at the TIVAS. As a result, issues 

identified from the new reconciliation process are researched, and any incorrectly 

processed Direct Loan Refunds are cancelled and corrected prior to resulting in 

improper payments.

The actual completion date was July 23, 2019.

Incorrect calculation of Direct Loan 

Refund

Corrective actions are required when a program’s improper payments exceed statutory thresholds, which did not apply to the 

Emergency Impact Aid and RESTART programs in FY 2019.
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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 Department of Treasury’s 

Do Not Pay (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 

2019, 1,607,013 payments, totaling $184.3 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 (SAM). The 

Department continues to validate that potential improper 

payments identified through this screening process were 

properly adjudicated and reported to Treasury timely.

Readers can learn more about DNP at 

https://fiscal.treasury.gov/DNP/.

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 

II. RECAPTURE OF IMPROPER 

PAYMENTS REPORTING

Agencies are required to conduct recovery audits for all 

programs and activities that expend more than $1 million 

in a fiscal year, if conducting such audits would be costeffective. 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 

decide not to 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 2019, the Department identified $220.48 million 

in improper payments and recovered $58.70 million 

in improper payments (or 27 percent), as depicted in 

Figure 26. 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.
FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 127

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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 2019 AFR reporting, the Department used a 

statistically valid and rigorous estimation methodology 

for estimating improper payments for the Pell Grant and 

Direct Loan programs. The Department submitted the 

statistically valid and rigorous estimation methodology 

to OMB on June 26, 2019. This statistical methodology 

uses a random sample of annual compliance audits. A 

small population of schools may apply for and receive 

a waiver or exemption from the compliance audit 

requirements. FSA accounts for these disbursements 

through a statistically valid sampling process. 

Additionally, on June 27, 2019, the Department 

submitted its statistically valid and rigorous 

methodologies for estimating improper payments for 

the Emergency Impact Aid and RESTART programs. 

The Department selected statistical payment samples 

to estimate the percentage and dollar value of improper 

payments for each program’s disbursements associated 

with supplemental disaster relief funding. Sample design 

was developed in accordance with the Improper Payments 

Elimination and Recovery Improvement Act (IPERIA) of 

2012, the Improper Payments Elimination and Recovery 

Act (IPERA) of 2010, the Improper Payments Information 

Act (IPIA) of 2002, and the sampling guidance provided 

in OMB Circular A-123, Appendix C (as revised by 

OMB document M-18-20, Requirements for Payment 

Integrity Improvement). The Department obtained FY 

2018 disbursement data for all disaster-related programs 

via the Department’s grants management system (G5). 

These data were based on amounts distributed from 

fund recipients. Additionally, there are limitations to the 

availability of data necessary to verify FAFSA information 

without increasing the burden on schools and students. 

For example, the Internal Revenue Code does not 

currently permit a database match with the IRS. 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, Senior 

Accountable Officials are identified for the Department 

and FSA.

VI. AGENCY INFORMATION SYSTEMS AND 

OTHER INFRASTRUCTURE

FSA Programs

FSA has the internal controls, human capital, and 

information systems and other infrastructure to reduce 

Pell Grant and Direct Loan improper payments. However, 

as noted in Section IV. Barriers, the Department must 

also rely on controls established by fund recipients who 

make payments on behalf of the Department. These 

controls are outside of the Department’s operational 

control. Additionally, there are limitations on FSA’s ability 

to obtain data necessary to verify FAFSA information 

without increasing the burden on schools and students. 

In its most recent budget submission, the Department 

included information on pursuing legislation to aid an 

income data match between FSA and the Internal Revenue 

Service. Such a match would eliminate the need to rely on 

tax transcripts submitted by the applicant and allow FSA 

to verify income directly with the IRS.
128 FY 2019 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

OTHER INFORMATION | PAYMENT INTEGRITY

that is not reporting an improper payment estimate. In 

FY 2019, the Department assessed improper payment risk 

for 266 grant activities (formula grants and discretionary 

grant competitions) under approximately 120 program 

authorities identified with disbursements in FY 2018. This 

risk assessment did not identify any additional Education 

programs as being susceptible to significant improper 

payments. In FY 2019, the Department did not conduct 

risk assessments of FSA-managed programs, as all FSAmanaged programs and activities were previously assessed 

for risk in FY 2017. 

SEAs to LEAs. For each state, the sampling timeframe 

represents the list of prior FY payments from which the 

statistical samples were selected.

The methodologies used for each of these programs 

are described in detail on the Department’s improper 

payments website.

VIII. 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