FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION 137

PAYMENT INTEGRITY INFORMATION ACT 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. Due to these 

“third-party” controls being 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.

DE SCR IP T ION OF R ISK-SUSCEP T IBL E 

A ND HIGH-PR IOR IT Y PROGR A MS 

In FY 2020, 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 2020, the Department continued 

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 three programs that met this criterion: the 

Temporary Emergency Impact Aid for Displaced Students 

(Emergency Impact Aid), Immediate Aid to Restart 

School Operations (RESTART) and Emergency Assistance 

to Institutions of Higher Education (EAI) 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. Readers can obtain a detailed breakdown 
138 FY 2020 AGENCY FINANCIAL REPORT | U.S. DEPARTMENT OF EDUCATION

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of information on improper payment estimates, root 

causes, and corrective actions for the programs at https://

paymentaccuracy.gov.

PE L L GR A NT 

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. 

DIR EC T LOA N 

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.

T E MPOR A RY E M ERGENC Y IMPAC T 

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.

IMM EDI AT E A ID TO R E STA RT 

SCHOOL OPER AT IONS 

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.

EMERGENCY ASSISTANCE TO 

INSTITUTIONS OF HIGHER EDUCATION

The Emergency Assistance to Institutions of Higher 

Education (EAI) program awards grants for emergency 

assistance to eligible Institutions of Higher Education 

(IHEs) for which a major disaster or emergency has been 

declared. Funds awarded assist activities directly related to 

mitigating the effects of a covered disaster or emergency 

on students and institutions. To the extent possible, EAI 

prioritizes projects that support students who are homeless 

or who are at risk of becoming homeless as a result of 

displacement related to a covered disaster or emergency; 

and IHEs that have sustained extensive damage by a 

covered disaster or emergency. 

In FY 2020, the Department used statistically valid and 

rigorous sampling and estimation methodologies to 

estimate the improper payment rates for the Pell Grant, 

Direct Loan, and EAI programs. Statistically valid and 

rigorous sampling and estimation methodologies were 

designed and implemented for the Emergency Impact 

Aid and RESTART programs in FY 2020. However, these 

methodologies did not yield the intended precision rates 

required for a rigorous estimate of the Emergency Impact 

Aid and RESTART programs. The methodologies used 

for each of these programs are described in detail on the 

Department’s improper payments website.

For detailed information on Pell Grant, Direct Loan, 

Emergency Impact Aid, RESTART and EAI improper 

payment estimates in FY 2020 and prior years, please visit 

https://paymentaccuracy.gov.

I. AC T IONS TA K EN TO 

A DDR E SS AU DITOR R ECOV ERY 

RECOMMENDATIONS

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 

and 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, 
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PAYMENT INTEGRITY | OTHER INFORMATION

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. 

The Department continues to work to improve its 

methods to identify, collect, and report on improper 

payment collections. For detailed information on 

identified and recovered improper payments in FY 2020, 

readers can visit https://paymentaccuracy.gov.

II. FRAUD REDUCTION REPORT

The Department continues to work with OMB to 

implement the Fraud Reduction and Data Analytics 

Act (FRDAA) of 2015 as incorporated by the Payment 

Integrity Information Act (PIIA) of 2019 and actively 

participates with OMB and other agencies in a 

government-wide workgroup that is collaborating on an 

implementation plan.

The Department has also taken steps to proactively 

identify the risk of fraud occurring across the agency. 

Through establishing an overarching Fraud Risk 

Governance Structure in FY 2020, the Department now 

has a means of promoting consistent organizational 

behavior by providing guidelines and assigning 

responsibility for fraud risk management, including 

the implementation of strong antifraud procedures 

and controls. Sources of guidance in implementing 

effective fraud risk management programs can be found 

in previous regulatory resources such as the PIIA and 

OMB A-123. In creating and adopting this Fraud Risk 

Governance Structure, the Department has identified 

several potential common fraud schemes and indicators. 

In doing so, internal and external fraud is differentiated 

to capture important distinctions in identifying and 

preventing both. Common fraud schemes include 

prospective vendors offering gifts or seemingly routine 

benefits during a competitive process, unbalanced bidding 

caused by employees providing their preferred bidder 

with information not disclosed to other vendors, and a 

vendor attempting to charge more than agreed to in the 

contract. OIG Investigative Services has identified several 

fraud indicators and further broken them down into the 

following categories:

1. K-12 Fraud—No separation of duties, missing school 

funds or property, inventory and financial records 

not reconciled, unreasonable costs, delayed or no 

reporting, unauthorized or related-party transactions, 

suspicious or unverifiable existence of vendors, grant 

award money runs out too quickly.

2. Postsecondary Education Fraud—Unexplained increase 

in wealth or lifestyle, unresolved or repeat audit 

findings and reluctance to provide information to 

auditors, nonexistent “students,” high employee 

turnover rate with low morale, lack of written policies 

and procedures, commonalities on Free Application 

for Federal Student Aid (FAFSA®) such as students 

sharing bank account numbers, home addresses, 

phone numbers or email addresses.

3. Public Corruption—Irregularities in contract awards 

or undue influence by people in decision making 

positions, suspicious bidding trends and patterns, 

conflicts of interest, transactions lacking business 

purpose, use of shell companies, bill and payment 

requests for services that may not have been provided.

4. Computer Crime—People requesting access to 

systems for which they do not need access, people 

accessing systems outside of normal working hours, 

excessive number of complaints about identity theft 

from customers, proprietary data belonging to an 

organization available unsecured on the internet.

This Fraud Risk Governance Structure also outlines the 

current efforts already underway at the Department to 

mitigate the risk of fraud, such as: 

 Required internal trainings covering fraud, waste, 

and abuse. 

 Multiple risk assessments by the OEDARM and FSA.

 Antifraud controls/tools that foster a culture of 

responsibility and awareness to mitigate fraud risk from 

penetrating the Department.

 FSA’s draft Fraud Risk Framework intended to outline 

FSA’s fraud risk management activities designed to 

combat fraud and preserve integrity in operations and 

programs, safeguard taxpayer monies, and minimize 

improper payments.
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 OIG Audits.

 Data analytics further consisting of preliminary 

analytics (trend analysis, pattern recognition, 

outlier detection), FSA Analytics using machine 

learning techniques to detect and mitigate potential 

fraud in the student loan portfolio, and OIG 

Information Technology Audits and Computer Crime 

Investigations who proactively monitor ED data 

through sophisticated modeling for criminal activity 

and network intrusions.

 Fraud Awareness Initiatives including (but not 

limited to) fraud communication (such as through 

the EDSOC Cyber Threat and Intelligence Security 

Bulletin), OIG fraud awareness and communication, 

and FSA’s fraud awareness communications during 

International Fraud Awareness Week.

The Department recognizes the challenges that often 

surround fraud risk management and is taking action to 

address each challenge. These challenges include limited 

resources to conduct fraud risk management activities 

and difficulties in definitively separating fraud from other 

negative outcomes. The Department is exploring ways to 

refine or enhance its business processes to be in a better 

position to define, deter, detect, and act upon fraud. 

To build capacity and expertise for and to dedicate 

resources to fraud risk identification and mitigation, 

especially in the Title IV programs, FSA has created a 

compliance and fraud risk group and designated a fraud 

risk advisor within its Enterprise Risk Management 

Directorate (ERMD). During FY 2020, ERMD’s 

compliance and fraud risk group’s primary work on 

fraud included: 

1. Working to revise the charter and reconstitute the 

Enterprise Fraud Risk Advisory (EFRA) Group. The 

EFRA Group was established in FY 2019 to promote 

the integration of fraud risk management practices 

and processes into the daily operations of FSA to 

assist in achieving organizational strategic goals and 

objectives. Its primary responsibility is to provide 

oversight, planning, and coordination of enterprise 

fraud risk management activities.

2. Continuing to receive and process distance education 

fraud ring referrals from the Department’s OIG. 

3. Establishing a third-party debt relief (TPDR) fraud 

unit in FY 2020. The TPDR unit is working to 

centralize TPDR complaints within FSA, collaborate 

with the OIG and other consumer and law 

enforcement agencies to investigate complaints against 

potential TPDR companies, and identify mitigation 

strategies to address fraud risk related to 

TPDR companies. 

The Department, in its efforts to combat fraud, takes into 

account the Government Accountability Office (GAO) 

Framework for Managing Fraud Risks in Federal Programs 

(GAO Fraud Risk Management Framework). The 

Department commits to oversee fraud risk management 

activities as highlighted in the above-mentioned Fraud 

Risk Governance Structure. Additionally, the Department 

continues to assess the risks associated with fraud across 

the Department as incorporated by the multitude of 

risk assessments performed by program offices. Internal 

controls related to fraud are implemented according to the 

Internal Control Framework and are evaluated accordingly 

to ensure that specific control activities exist to mitigate 

assessed risks. The Department has catalogued internal 

controls related to fraud prevention and detection, which 

includes detective and preventive controls related to its 

grant and administrative payments.

The Department continues to evaluate the current fraud 

landscape and will adopt activities to improve fraud risk 

management. For example, to combat improper use of 

federal funding under the Every Student Succeeds Act

(ESSA), the Department requires that each recipient and 

subrecipient publicly display the contact information of 

the Department’s OIG hotline to facilitate the reporting 

of suspected improper use of ESSA funding. Furthermore, 

in accordance with 2 CFR 200 (Uniform Guidance), 

each recipient and subrecipient provides assurances 

of truthfulness and accuracy of the information they 

provide in applications and in response to monitoring and 

compliance reviews.