STATUS OF FINANCIAL MANAGEMENT AT 

THE U.S. DEPARTMENT OF EDUCATION 

HEARING

BEFORE THE 

SUBCOMMITTEE ON SELECT EDUCATION 

OF THE 

COMMITTEE ON EDUCATION AND 

THE WORKFORCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, JULY 24, 2001 

Serial No. 107-24 

Printed for the use of the Committee on Education 

and the Workforce

U.S. GOVERNMENT PRINTING OFFICE 

WASHINGTON : 2002 

80-036 pdf 

For sale by the Superintendent of Documents, U.S. Government Printing Office 

Internet: bookstore.gpo.gov Phone: (202) 512-1800 FAX: (202) 512-2250 

Mail: Stop SSOP, Washington, DC 20402-0001
ii

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman 

THOMAS E. PETRI, Wisconsin GEORGE MILLER, California 

MARGE ROUKEMA, New Jersey DALE E. KILDEE, Michigan 

CASS BALLENGER, North Carolina MAJOR R. OWENS, New York 

PETER HOEKSTRA, Michigan DONALD M. PAYNE, New Jersey 

HOWARD P. “BUCK” McKEON, California PATSY MINK, Hawaii 

MICHAEL N. CASTLE, Delaware ROBERT E. ANDREWS, New Jersey 

SAM JOHNSON, Texas TIM ROEMER, Indiana 

JAMES C. GREENWOOD, Pennsylvania ROBERT C. “BOBBY” SCOTT, Virginia 

LINDSEY O. GRAHAM, South Carolina LYNN C. WOOLSEY, California 

MARK E. SOUDER, Indiana LYNN N. RIVERS, Michigan 

CHARLIE W. NORWOOD, JR., Georgia RUBEN HINOJOSA, Texas 

BOB SCHAFFER, Colorado CAROLYN McCARTHY, New York 

FRED UPTON, Michigan JOHN F. TIERNEY, Massachusetts 

VAN HILLEARY, Tennessee RON KIND, Wisconsin 

VERNON J. EHLERS, Michigan LORETTA SANCHEZ, California 

THOMAS G. TANCREDO, Colorado HAROLD E. FORD, JR., Tennessee 

ERNEST L. FLETCHER, Kentucky DENNIS KUCINICH, Ohio 

JIM DeMINT, South Carolina DAVID WU, Oregon 

JOHNNY ISAKSON, Georgia RUSH D. HOLT, New Jersey 

BOB GOODLATTE, Virginia HILDA L. SOLIS, California 

JUDY BIGGERT, Illinois SUSAN DAVIS, California 

TODD RUSSELL PLATTS, Pennsylvania BETTY McCOLLUM, Minnesota 

PATRICK J. TIBERI, Ohio 

 RIC KELLER, Florida 

 TOM OSBORNE, Nebraska 

 JOHN ABNEY CULBERSON, Texas 

Paula Nowakowski, Chief of Staff 

John Lawrence, Minority Staff Director

__________ 

SUBCOMMITTEE ON SELECT EDUCATION 

PETER HOEKSTRA, Michigan, Chairman

PATRICK TIBERI, Vice Chairman TIM ROEMER, Indiana

THOMAS E. PETRI, Wisconsin ROBERT C. SCOTT, Virginia 

JAMES C. GREENWOOD, Pennsylvania RUSH D. HOLT, New Jersey 

CHARLIE W. NORWOOD, JR., Georgia SUSAN DAVIS, California 

BOB SCHAFFER, Colorado BETTY McCOLLUM, Minnesota 

VAN HILLEARY, Tennessee LORETTA SANCHEZ, California 

TODD RUSSELL PLATTS, Pennsylvania 
iii

TABLE OF CONTENTS 

TABLE OF CONTENTS ......................................................................................................1 

OPENING STATEMENT OF CHAIRMAN PETER HOEKSTRA, SUBCOMMITTEE 

ON SELECT EDUCATION, COMMITTEE ON EDUCATION AND THE 

WORKFORCE, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, DC ..............1 

OPENING STATEMENT OF RANKING MINORITY MEMBER, TIM ROEMER, 

SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE ON EDUCATION AND 

THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, DC......5 

STATEMENT OF THE HONORABLE WILLIAM D. HANSEN, DEPUTY 

SECRETARY, U.S. DEPARTMENT OF EDUCATION, WASHINGTON, DC................7 

STATEMENT OF LORRAINE LEWIS, INSPECTOR GENERAL, U.S. DEPARTMENT 

OF EDUCATION, WASHINGTON, DC ...........................................................................11 

STATEMENT OF LINDA CALBOM, DIRECTOR, DIVISION OF FINANCIAL 

MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE, 

WASHINGTON, DC ..........................................................................................................13 

APPENDIX A -- OPENING STATEMENT OF CHAIRMAN PETER HOEKSTRA, 

SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE ON EDUCATION AND 

THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, DC....43 

APPENDIX B -- OPENING STATEMENT OF RANKING MINORITY MEMBER, TIM 

ROEMER, SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE ON 

EDUCATION AND THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES, 

WASHINGTON, DC ..........................................................................................................53 

APPENDIX C -- STATEMENT OF THE HONORABLE WILLIAM D. HANSEN, 

DEPUTY SECRETARY, U.S. DEPARTMENT OF EDUCATION, WASHINGTON, DC

.............................................................................................................................................57 

APPENDIX D -- STATEMENT OF LORRAINE LEWIS, INSPECTOR GENERAL, U.S. 

DEPARTMENT OF EDUCATION, WASHINGTON, DC ...............................................65 

APPENDIX E -- STATEMENT OF LINDA CALBOM, DIRECTOR, DIVISION OF 

FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING 

OFFICE, WASHINGTON, DC.........................................................................................101 

TABLE OF INDEXES ......................................................................................................124 
iv
1

STATUS OF FINANCIAL MANAGEMENT AT THE 

U.S. DEPARTMENT OF EDUCATION 

______________________________ 

Tuesday, July 24, 2001 

House of Representatives, 

Subcommittee on Select Education, 

Committee on Education and the Workforce, 

Washington, D.C. 

The subcommittee met, pursuant to call, at 9:30 a.m., in Room 2175, Rayburn House 

Office Building, Hon. Peter Hoekstra presiding. 

 Present: Representatives Hoekstra, Tiberi, Norwood, Schaffer, Platts, Roemer, Scott, 

Holt, Davis, McCollum, and Sanchez. 

 Staff Present: Patrick Lyden, Professional Staff Member; Stephanie Milburn, 

Professional Staff Member; Michael Reynard, Deputy Press Secretary; Deborah L. Samantar, 

Committee Clerk/Intern Coordinator, Jo-Marie St. Martin, General Counsel; Holli Traud, 

Legislative Assistant; Heather Valentine, Press Secretary; Maggie McDow, Minority 

Legislative Associate/Education; and Joe Novotny, Minority Staff Assistant/Education. 

Chairman Hoekstra. A quorum being present, the Subcommittee on Select Education will 

come to order. We are here to hear testimony on financial management at the Department of 

Education. Under Committee Rule 12-B, opening statements are limited to the Chairman and 

the Ranking Member of the subcommittee; therefore, if other members have statements, they 

may be included in the hearing record. With that, I ask unanimous consent for the hearing 

record to remain open for 14 days to allow members' statements and other extraneous 

material to be submitted in the official hearing record. 

Mr. Roemer. Without objection. 

OPENING STATEMENT OF CHAIRMAN PETER HOEKSTRA, 

SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE ON 

EDUCATION AND THE WORKFORCE, U.S. HOUSE OF 

REPRESENTATIVES, WASHINGTON, DC 

Chairman Hoekstra. Without objection, so ordered. Thank you. 

 This is a continuing saga. A couple of our witnesses have been here before. Deputy 

Secretary Hansen, welcome, and we look forward to working with you. 
2

This is actually the fifth hearing that we have held to review these issues. This will 

be the first time we have had the opportunity to hear from the new administration and, as Mr. 

Roemer and I have indicated, we would like nothing better than to make this one of the last 

hearings that we have on the financial management of the department. We look forward to 

the day when this becomes more of a formality to review the financial statements and the 

financial condition of the department, and we can spend most of our time not talking about 

where the dollars have gone or our ability to account for the dollars, but that we can focus all 

of our time talking about the effectiveness of how those dollars are being spent and the 

programs that this committee has jurisdiction over. 

 As you know, for the last three years of the Clinton administration, the department 

failed three consecutive annual audits of its financial statements. What that means is that the 

auditors who came in and took a look at these statements, the independent auditors, did not 

have a high degree of confidence that the numbers reflected in the financial statements 

accurately reflected what went on within the department during that year. 

 During our hearing in April we heard that an estimated $450 million was lost to 

waste, fraud, and abuse. Unfortunately, today we will again hear from the General 

Accounting Office. We are glad you are here, but we are not all that excited about what you 

are going to have to say, and also from the Inspector General, that there are still inadequate 

internal controls that may have led to improper payments. As we move forward to enacting 

the president's budget which has a commitment to increasing federal education spending, it is 

now more important than ever that we make sure that we get the proper financial controls in 

place so that we know that each and every dollar that we spend is going to the place and for 

the intended purpose that Congress has appropriated that money for. 

Secretary Paige and the new administrators at the department have inherited what I 

think simply can be called a mess. The department faces a number of significant financial 

management challenges highlighted in the annual financial audit statements. We have 

discussed these during our last hearings, and GAO and the Office of Inspector General have 

also made these points. 

 I want to express our appreciation to both of you and the organizations that you 

represent for the persistence in highlighting these issues, and to continue kind of peeling 

away the layers of the onion and pointing out the problems consistently. 

 Also, the GAO is currently conducting a fraud audit, at the request of this committee. 

GAO's staff is examining the internal controls for the department's disbursement processes 

and searching records for possible instances of improper payments. They have helped 

identify two which have gotten some attention lately, which are the use of third-party drafts 

and government purchase cards which are, in effect, government credit cards. 

 At our last hearing, GAO testified that a lack of segregation of duties when issuing 

third-party drafts has left the Department vulnerable to the possibility of employees using 

drafts for personal expenses. In addition, while third-party drafts have a limit of $10,000 

each, one of the department's manuals gave instructions to employees on how to add a suffix 

to an invoice in order to issue multiple checks to a payee, which means that the department's 

manual gave instructions to its own employees on how to circumvent the rules that the 

department had established. 
3

At the same hearing, GAO also identified that 230 department employees had 

government credit cards. While most had monthly limits of $10,000, two employees could 

charge up to $300,000 per month. In addition, GAO noted that an official did not sign 141 of 

the 676-cardholder monthly statements that they reviewed. Indicating that the purchase was 

approved, despite Department policy requiring a signature and review of each statement. 

That says that the department paid for almost 25 percent of the payments that were incurred 

by government credit cards, without the department authorizing the payment. 

 Today, GAO will inform us about other internal control weaknesses in the use of 

purchase cards, third-party drafts, and in the operations of the grant administration and 

payment system. 

 We know that insufficient internal controls have resulted in fraud against the 

department. In May of this year, 11 individuals, including 4 employees of the department, 

were indicted for their participation in a wide-ranging fraud scheme against the department. 

In the scheme, the defendants allegedly conspired together so that electronic items ordered 

for personal use were paid for under a Bell Atlantic contract with the department. Items 

obtained included computers, cellular and cordless phones, Palm Pilot organizers, cameras, 

and, what all of us are waiting for when it comes to public auction, is the 61-inch television. 

The total value of the goods obtained by this group exceeded $300,000, in addition to more 

than $600,000 in false overtime payments to contractors. 

 This occurrence of fraud follows another incident with which this committee is 

familiar. In March 2000, 1.9 million in impact aid grant money intended for two South 

Dakota school districts was embezzled from the department. Although she is limited in what 

she can share with us today, we also appreciate Ms. Lewis conducting other investigations of 

possible criminal action within the department. 

 Given this background I am quite pleased and encouraged by the actions of Secretary 

Paige and Deputy Secretary Hansen. They are taking steps to find the root cause of these 

management woes and chart a new course for financial oversight at the department. 

 In April, Secretary Paige announced a new initiative to address past mismanagement 

and fraud at the department. The plan included three parts: install new leadership in the 

financial management areas of the department; assemble a management improvement team; 

and solicit the counsel and advice of external advisors. 

 Deputy Secretary Hansen is here today to update us on the work ongoing as part of 

this initiative, but I think a couple of points are worth highlighting. The Secretary reported 

last week on the effort of the Management Improvement Team. I think one of the most 

astounding statistics that came out of the interim report is that the team identified 661 

recommendations for management improvements that were open as of April 1, 2001 or 

subsequently identified before July 16. And has already addressed 309 of these 

recommendations. 

 A couple of facts here are remarkable. First, 661 recommendations from a variety of 

sources including financial statement audits, GAO, the student financial assistance 

performance plan, and the Office of the Inspector General were carried into this new 

administration without being addressed. Second, in just three months' time, the new 

Management Improvement Team has closed 104 of the recommendations and developed 
4

corrective action plans for another 205. 

 I hope and believe that these statistics underscore the lack of attention these critical 

issues had received in the past and hopefully the expectation and we will monitor that, the 

commitment of the new administration to resolve these issues. 

Secretary Paige also responded swiftly to the concerns that Congressman Tiberi and I 

raised about the use of third-party drafts and government purchase cards. In June, the 

government eliminated the use of third-party drafts. 

 Thank you very much. We appreciate that. 

 The department determined that the administrative conveniences that their use 

provided were far outweighed by the risk and potential for abuse. 

 In addition, the department restricted access and reduced purchase limits for 

employee use of government purchase cards. Single purchase and monthly limits have been 

lowered to ranges of $500 to $30,000, and the department is strengthening review and 

approval of all credit card purchases and bills, and updating policies and training for use of 

the cards. 

 In addition, the president has announced the nomination of Jack Martin to be chief 

financial officer at the department. Upon his confirmation, Mr. Martin will fill a position that 

had been vacant for the last 2-1/2 years of the previous administration. I understand the 

nomination of Assistant Secretary for the Office of Management will be made soon. That 

position has been vacant for five years. Filling these positions I think reflects a commitment 

to ensure that leadership for financial management will be in place at the highest levels. 

 Today we want to learn more about the areas of vulnerability and how those areas can 

best be addressed. It is clear that the previous administration lacked a commitment to 

financial management. Now we have an opportunity to work with this new administration 

and a new Secretary to get the department's books in order and put the proper systems in 

place, the proper systems in place to prevent further waste, fraud, and abuse of taxpayer 

dollars. Thank you for being here. 

 At this time I will yield to my friend and Ranking Member, Congressman Tim 

Roemer. 

OPENING STATEMENT OF CHAIRMAN PETER HOEKSTRA, SUBCOMMITTEE ON 

SELECT EDUCATION, COMMITTEE ON EDUCATION AND THE WORKFORCE, U.S. 

HOUSE OF REPRESENTATIVES, WASHINGTON, DC – SEE APPENDIX A 

Mr. Roemer. Thank you. I thank my friend from the State of Michigan and ask unanimous 

consent that my entire statement be entered in the record. 

Chairman Hoekstra. Without objection, so ordered. 
5

OPENING STATEMENT OF RANKING MINORITY MEMBER, TIM 

ROEMER, SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE 

ON EDUCATION AND THE WORKFORCE, U.S. HOUSE OF 

REPRESENTATIVES, WASHINGTON, DC

Mr. Roemer. I thank the chairman from the great State of Michigan for holding this hearing 

and want to begin my remarks, which I hope will be brief, by just stating that my 

constituents, the Hoosiers in Indiana, are very concerned about how tax dollars are spent. 

They want them spent wisely and efficiently, whether it is the Department of Education we 

are talking about, whether it is the Department of Defense we are talking about, or whether it 

is another agency or cabinet-level department. 

I also want to say that I don't enjoy sitting through now my fifth hearing on this topic, 

when we could be discussing how we better impact the kind of services we provide to 

children through Head Start programs. I could be meeting on the Conference on the 

Elementary Secondary Education Act, which is being reconciled as we speak, between the 

House and the Senate. We could talk about after-school programs or tutoring programs to 

remediate many of the children in this country and the problems they are having. We can 

talk about bold new reforms to help our public education system. Instead, once again, we are 

here talking about insufficient internal controls and some management problems at the 

Department. 

 Now, I strongly support the Department of Education. I think it is one of the most 

important and vital departments that we can have and that we can support with tax dollars. 

There have been efforts to dismantle and get rid of the Department of Education through the 

years by some on the other side of the aisle. We have fought those efforts tooth and nail, and 

we will continue to fight any kind of efforts that would eliminate the Department of 

Education and much of the good work that goes on there. 

 However, there are problems. Just as in a Charles Dickens novel, there are both 

stories of good news and bad news as we speak about the Department of Education. I want 

to talk first about some of the good news. The cohort default rate on student loans has 

declined for seven consecutive years. It is now at a record low, 6.9 percent. Several years 

ago, it was up at 22 percent. Now it has declined to 6.9 percent. That is a savings not of 

hundreds of thousands of dollars, but tens of millions, maybe hundreds of millions of dollars 

to taxpayers. That is good news. Additionally, the collections on default of loans have more 

than doubled from $1 billion in 1993 to over $3 billion in 1999. That is a savings not of tens 

of thousands of dollars or hundreds of millions of dollars, but billions of dollars to taxpayers. 

And data improvement in the national student loan data system has prevented the 

disbursement of as much as $1 billion in grants to students that are ineligible. That is good 

news; again a billion dollars in savings. 

 So there are some good things going on in the Department of Education, and we hope 

over the next 10 and 20 years, with the authorization of ESEA, we are going to be tackling 

the authorization of IDEA, Individuals with Disabilities and Education Act. We hope there 

continues to be more good news for taxpayers and bold reform in our Nation's public schools. 
6

But today we are here with the very good work of the General Accounting Office, 

who does excellent work for both Republicans and Democrats in this Congress; and with our 

IG and with this new administration, we are here to look at some of the ongoing aggravating, 

nagging problems that don't go away. Some of these started in the first Bush administration, 

some of them continued through the Clinton administration, and they are there today. 

 The General Accounting Office states in their financial management testimony for 

release today, that I am sure we are going to hear about, poor internal control exposes 

Department of Education to improper payments. And a reference to Page 15, for example, 

we found an instance that there is now being investigated by our Office of Special 

Investigations in which a cardholder, holding these credit cards, made several purchases from 

two pornographic Internet sites. 

 Now, the administration, the current administration, can do some good things to take 

back the number of cards. They can do some good things to limit the amount that can be 

charged to these cards, but they also need to implement the controls internally over the 

department so that we can catch, if they split what they are spending this money on and try to 

disguise it, maybe sometimes with the help of vendors or who knows what, how do we catch 

that internally; or, if they are going to pornographic sites, how do we catch that internally? 

That is an ongoing problem. 

 So I hope that we can get some answers to some of these problems. I hope that we 

have not another 12 hearings on these problems of financial mismanagement and insufficient 

internal controls. I hope this will bring to a conclusion some of the ongoing problems that 

have been going on for a decade and longer there in a department that does some very 

important, very fine, and very valuable work for the nation's children, for our nation's schools 

and for our nation's taxpayers. But we have got to get these internal controls fixed, and we 

have got to work together to make sure that the American people have confidence in the way 

the Department of Education works. 

 So with that, Mr. Chairman, I look forward to the testimony this morning. I hope we 

will soon conclude these hearings and we don't have them for another four years, and I hope 

that you and I can concentrate on some other hearings in the next few months, too. And with 

that, I yield back the balance of my time. 

OPENING STATEMENT OF RANKING MINORITY MEMBER, TIM ROEMER, 

SUBCOMMITTEE ON SELECT EDUCATION, COMMITTEE ON EDUCATION AND 

THE WORKFORCE, U.S. HOUSE OF REPRESENTATIVES, WASHINGTON, DC – SEE 

APPENDIX B 

Chairman Hoekstra. I thank my colleague, and we will move on to other things as well. 

We reported out of this subcommittee Juvenile Justice. I indicated to my colleague this 

morning that I had the opportunity to meet the new nominee to head the Corporation for 

National Community Service. We look forward to working together on reauthorizing that 

legislation. But before we do that, we have got to get through today, and the person that is 

going to lead the effort to make sure we don't have many more of these hearings is Deputy 

Secretary Bill Hansen. Good morning and welcome. 

Mr. Hansen is the recently confirmed Deputy Secretary of Education at the 

Department of Education. He has served in several positions at the department, including 

Assistant Secretary for Management and Budget, Chief Financial Officer, Deputy Under 
7

Secretary for Planning, Budget and Evaluation, and Assistant Secretary for Legislation and 

Congressional Affairs. He's also had a number of other positions in the private sector and in 

government service. He brings a great background for the challenges he faces at the 

department. 

 Deputy Secretary Hansen, welcome and good morning. Thank you for being here. 

 We also have back again Ms. Lorraine Lewis. Ms. Lewis has been the Inspector 

General at the U.S. Department of Education since June of 1999. Previously Ms. Lewis 

served as the general counsel at the U.S. Office of Personnel Management where she led 

efforts to privatize two major programs and abolish the Federal Personnel Manual. She also 

served with the U.S. Senate Government Affairs Committee as general counsel, counsel, and 

assistant counsel. Ms. Lewis has a bachelor's degree from Yale and a law degree from 

Harvard. Welcome back. 

 We also have Ms. Linda Calbom. Ms. Calbom is the director of the Division of 

Financial Management and Assistance at the General Accounting Office. She is also 

responsible for GAO's financial management work at many federal civil agencies that include 

HHS, SSA, Education, DOE, USDA, HUD, Transportation, Interior, SBA. You are one busy 

person.

Ms. Calbom. I have a few things going on. 

Chairman Hoekstra. She is a certified public accountant and a certified government 

financial manager. Welcome back and thank you for being here. 

Chairman Hoekstra. We will begin with you, Deputy Secretary Hansen. 

STATEMENT OF THE HONORABLE WILLIAM D. HANSEN, DEPUTY 

SECRETARY, U.S. DEPARTMENT OF EDUCATION, WASHINGTON, 

DC

Mr. Hansen. Thank you, Mr. Chairman, and thank you, Mr. Roemer, for your comments, 

and I welcome the opportunity. This may be the last hearing on this issue but I suspect we 

may be here again. 

 I would like to thank you for the opportunity to discuss the status of our progress in 

bringing better financial management and more accountability to the Department of 

Education. Since taking the oath of office as Deputy Secretary just over 8 years ago, I have 

been grateful for the support I have received from members of your committee. The work 

done by you and your colleagues over the last few years has helped us hit the ground running 

by identifying the department's problems and guiding the new administration in where we 

need to be headed. Likewise, I appreciate the efforts of the General Accounting Office and 

our Inspector General's Office as they have also helped point out the problems we need to 

have our arms around. 
8

I would like just to put in context the size and scope of the department. Back 15 

years ago, the department made about $13 billion in discretionary awards and about $7 

billion guaranteed loans, totaling about $20 billion. Today the discretionary budget is 

totaling $45 billion, and the mandatory account and student loans is about $35 billion. So it 

is a total of about $80 billion that we are responsible for managing. It has basically 

quadrupled in the last 15 years, and I just think it is important to keep the size and scope of 

what we administer at the department as we go about our business here. 

 We are making steady progress in addressing the department's longstanding financial 

management problems. When this effort began back in April, we faced 661 

recommendations for management improvements. Last week, Secretary Paige reported that 

we have already taken action on more than 300 of these recommendations. More than 100 

recommendations for management improvement have been put into effect, and corrective 

action plans for another 205 have been drawn up and put in place. 

 Tackling these longstanding problems is a top priority for this administration. As you 

know, President Bush is holding all agency heads accountable for obtaining and maintaining 

unqualified or clean opinions on their financial annual audit statement. But this is not simply 

an end in and of itself. To get to this goal, we must get beyond the symptoms and deal with 

the deeper problem, which is a lack of organizational culture that incorporates accountability. 

 For this reason, Secretary Paige and I are committed to transforming the department's 

approach to delivering program services, including the financial operations that support those 

services, to one where every department employee, grantee, and contractor is accountable for 

results.

 The disclaimers and qualified financial audit opinions that the department has 

received in prior years were indications of the extensive problems facing the department. 

These problems include a serious lack of internal controls that allowed employee and 

contractor misconduct to occur. This misconduct has tarnished the department's reputation 

and damaged the perception of Congress and of the American people. 

 On April 20, Secretary Paige established a Management Improvement Team of senior 

career managers to identify, resolve, and close our outstanding management improvement 

recommendations and develop a blueprint to address longer-term and structural issues that 

hinder the efficient and effective performance of the department. 

 Last week the department issued an interim report on our progress during the first 90 

days. Our next report, which will be completed by September 30, will update our complete 

continued progress and outline where we are headed in the future. 

 The Management Improvement Team started out by a assessing each of the 661 

outstanding recommendations and determining which could be addressed immediately and 

which would take longer to correct. The team prioritized the recommendations and 

segmented them into three primary financial management categories: financial management, 

student financial assistance high-risk issues, and information technology security issues. 

Next, we immediately went after the problem areas. For example, we reduced the spending 

limits on government purchase cards, some by more than 90 percent. We also reduced the 

number of employees with access to purchase credit cards. 
9

To begin to move to this culture of accountability that I mentioned earlier, we are 

requiring all purchase cardholders to go through mandatory training on the proper use of the 

cards, and are now requiring all supervisors to review the card statements each month for the 

cardholders in their respective offices. Similarly, we increased controls to ensure against the 

improper use of travel cards. 

 We also are in the process of eliminating, and have eliminated in some respects, the 

use of third-party drafts that were easy targets for abuse. This method of disbursement was 

intended to replace an antiquated and inefficient expense reimbursement fund, but the 

benefits of this system clearly did not outweigh the risks. So we decided to transfer the 

function entirely to the Department of Treasury. This will simplify our operations and allow 

us to focus on other remaining problems while virtually eliminating any possibility of fraud 

in this area. 

 Our auditors identified many weaknesses in the current accounting system, and these 

weaknesses are being addressed in the implementation of a completely new accounting 

system that will produce fully integrated financial management information. In addition, 

staff members are reviewing the department's financial processes and systems to facilitate 

reconciliation of major accounts and ensure all transactions are recorded properly. This will 

provide us an important tool used in detecting and correcting errors. Monthly 

reconciliation’s of critical accounts are already being done. 

 We are improving internal controls over the procurement of goods and services 

through strong accountability measures. This is another area that has been subject to abuse, 

and we want to make sure that it does not recur in the future. To do this, we are updating 

internal policy directives, informing employees of these changes, and holding managers 

accountable for their implementation. We are completely reengineering asset management to 

ensure that proper internal controls and accountability are maintained. 

 We recently completed a reconciliation of the department's asset inventory, and we 

will conduct spot checks of inventory throughout the year as well as annual physical 

inventories.

 The secretary has made getting the student financial assistance programs off the 

General Accounting Office's list of high-risk programs a high priority. These programs have 

been considered high risk ever since the GAO first began issuing the list in 1990. We have 

already taken important steps toward removing the student financial aid programs from this 

watch list, including developing a corrective action plan that incorporates all the outstanding 

audit recommendations related to SFA and setting 28 performance goals for improving fiscal 

and program integrity. I have also directed the department to address all of the financial 

management and security issues that must be resolved before the student financial assistance 

programs can be removed from the General Accounting Office's high-risk list. 

 Despite the department's increasing dependence on computer systems for performing 

its basic business functions, it has not until recently placed a high priority on the protection of 

its computer systems or provided adequate resources for IT security. Over the past year and 

a half, the IG has issued several audit reports critical of the department's computer security 

environment. The secretary and I are committed to improving the department's information 

security, and I will personally co-chair, with the CIO, the monthly meetings of the 

Department's Information Security and Critical Infrastructure Steering Committee to make 
10

sure that this gets done. 

 We have made the following enhancements to our computer security in the last 90 

days. These include purchase and deployment of a new intrusion detection system for the 

department's computer network, arranging for disaster recovery facilities for our EDCAPs 

financial management system and our EDnet enterprise computer network, updating our IT 

security policies, and we developed a security training program for our IT professional staff 

and managers and are using it to train our employees. 

 We will also be completing security reviews of each of the department's 135 

information systems under the Government Information Security Reform Act of 2000. As I 

mentioned before, the biggest challenge we face is developing a department culture that 

emphasizes individual responsibility and accountability. We must be diligent in establishing 

and enforcing internal controls throughout the department. 

 In May, Secretary Paige asked all staff to share their ideas and to join in this effort. 

Many of the professional career staff at the department have already rolled up their sleeves 

and are working hard to help us achieve everything that we have accomplished to date. A 

couple of them are here today. 

 Jack Higgins, the Deputy Inspector General, is on loan to us from the IG's office, is 

heading up the Management Improvement Team. 

 Phil Maestri from the Chief Financial Officer's staff, and Ann Clough from the Office 

of Legislation and Congressional Affairs, both of whom have many, many years of valuable 

experience with these issues, are key team members. 

Secretary Paige and I know that Jack, Phil, Ann, and the rest of the department's 

employees are ready and willing to embrace this culture of accountability. 

 Finally, here are some action steps that will help get us there: 

 First, every senior officer, including myself, will have a performance contract with 

Secretary Paige that will hold each of us accountable for results. 

 Second, every manager and employee will have a performance agreement that 

reflects the department's goals and objectives and establishes clear individual job 

performance expectations. 

 And, third, we will provide training for managers and staff on internal financial and 

administrative controls and ethical conduct. 

 Fostering a culture of accountability and excellence also requires that we make better 

use of the performance management tools available under the Government Performance and 

Results Act. First of all I'd like to say, throw in the garbage can the previous plan that we 

have been using and start over. It was very much of a bureaucratic document, and we are 

going to start from scratch and make this document an important management tool for us. In 

doing so, we will review all current performance indicators for validity, timeliness, and 

value. We will also align principal office and individual employee performance plans with 

the revised department plan, and we will also closely monitor the results against these plans. 
11

Finally, Secretary Paige and I recognize that the enactment of the President's "No 

Child Left Behind" education reform plan is landmark legislation in bringing accountability 

to education. We know we cannot expect our schools to be accountable if we are not 

accountable here in Washington. We are here to get that done, and, as Secretary Paige has 

said, there will be no excuses. 

Mr. Chairman, thank you for this opportunity to be with you today. 

STATEMENT OF THE HONORABLE WILLIAM D. HANSEN, DEPUTY SECRETARY, 

U.S. DEPARTMENT OF EDUCATION, WASHINGTON, DC – SEE APPENDIX C 

Chairman Hoekstra. Thank you very much. Ms. Lewis. 

STATEMENT OF LORRAINE LEWIS, INSPECTOR GENERAL, U.S. 

DEPARTMENT OF EDUCATION, WASHINGTON, DC 

Ms. Lewis. Mr. Chairman and members of the subcommittee, thank you for the opportunity 

to participate in today's hearing on financial management practices at the Department of 

Education. The department has made progress in addressing its serious financial 

management issues, but much work remains. I commend the subcommittee for its strong 

interest and for the attention it has given to financial management. 

 I will focus my statement on the specific items you requested: our reviews over the 

use of government purchase cards and third-party drafts or checks; investigations; and our 

recommendations to the department on how to improve its financial management. 

 At the request of the department, we reviewed its internal controls over the use of 

purchase cards and checks. In our report of October 2000, we found significant issues and 

made recommendations to the department designed to strengthen the control environment 

over the use of purchase cards and checks, provide for an assessment of the external and 

internal risks the agency faces, strengthen control activities over the use of purchase cards 

and checks, strengthen information and communication regarding their use, and strengthen 

monitoring over their use. 

 Department officials concurred with our findings and recommendations. 

 We initiated a follow-up review to address two specific recommendations that are key 

to ensuring that purchase cards are used properly and that the department is paying the 

correct amount. These are, number one, requiring that all approving officials review and sign 

monthly purchase card statements; and, two, reconciling the monthly department-wide 

purchase card statement to the monthly statements approved by the approving officials from 

the principal offices and to the department's accounting system. 

 For the month ending February 16, 2001, we reviewed 184 individual statements and 

found that six statements lacked required signatures and that 68 statements were not 

submitted timely. This was an improvement over the last two months that we had looked at, 

one in 1999 and one in 2000. Further, the department's consolidated bill was paid 38 days 

after the due date. The department did provide documentation of reconciliation, which we are 

still evaluating. Department staff stated that when the new financial system is operational, 
12

the reconciliation process should be more efficient. 

 When we reviewed the documentation for the payment of the department-wide 

statement for May 2001, we found that the department had not sent timely notices to 

purchase card-approving officials for 22 overdue statements. The department statement 

again was paid late, this time 10 days late. 

 While the department has taken several significant steps, important steps, to correct 

weaknesses in the purchase card program since our initial review, it still has some work to do 

to improve its administration. We are conducting an investigation on individuals who 

between 1997 and 1999 purchased or received equipment paid for with federal funds for no 

business-related purposes and billed the department for overtime hours not worked. The 

defendants defrauded the government of more than $300,000 in property and more than 

$700,000 in false overtime charges. 

 On May 23, 2001, 11 individuals, including four employees of the department, were 

charged in a 19-count indictment. The charges included conspiracy to defraud the 

government, theft of government property, receipt of stolen government property, sale of 

stolen government property, and conspiracy to submit false claims to the government. Eight 

individuals, including four former department employees, previously or recently pled guilty. 

All of the department employees who were involved or who are alleged to be involved in 

these criminal cases have resigned or been placed on indefinite suspension without pay. 

 The blueprint for addressing financial management issues lies in the financial 

statement audit reports, particularly the report on internal controls. Addressing the three 

material weaknesses and two reportable conditions in the last internal controls report will 

greatly assist the department in reaching its goal related to responsible financial management. 

 We have also identified issues critical to financial management in the list of 

management challenges that we provide on an annual basis to Congress. In addition, the 

audits and other reports that I discussed in my longer statement for the record contain many 

recommendations that would improve the internal controls of the department and contribute 

to strong financial management. 

Secretary Paige's establishment of the Management Improvement Team is an 

important step toward improvement, and I very much commend him for launching this effort. 

The MIT's interim report of last week reflects a comprehensive review of financial 

management, information technology security, and other management issues, and illustrates 

the significant challenges that still lie ahead. 

 We are committed to identifying problems and working with the department and 

Congress on solutions. We welcome the opportunity to have GAO join us in our oversight 

activity and have shared with its auditors the results from many internal control reviews and 

given them access to our work papers. We appreciate GAO's work and its results, and have 

learned from its efforts. 

Mr. Chairman, this concludes my statement, and to you and members of the 

subcommittee. I would be happy to answer any questions that you may have. 
13

STATEMENT OF LORRAINE LEWIS, INSPECTOR GENERAL, U.S. DEPARTMENT 

OF EDUCATION, WASHINGTON, DC – SEE APPENDIX D 

Chairman Hoekstra. Thank you. Ms. Calbom. 

STATEMENT OF LINDA CALBOM, DIRECTOR, DIVISION OF 

FINANCIAL MANAGEMENT AND ASSURANCE, GENERAL 

ACCOUNTING OFFICE, WASHINGTON, DC 

Ms. Calbom. Thank you, Mr. Chairman. As all of you know, internal control and financial 

management weaknesses at the Department of Education are not new. GAO as well as the 

Inspector General have provided many reports and testimonies over the last several years on 

the financial management challenges faced by Education and the need to eliminate internal 

control weaknesses that expose the department to fraud, waste, and abuse. 

 Because of this exposure, as you mentioned, you requested that we audit selected 

types of transactions made between May of 1998 and September 2000, which may be 

particularly susceptible to fraud or other types of improper payments. Our ongoing work is 

focused on three areas: First, the grant and loan payment system, with $181.4 billion in 

disbursements. Next, third party drafts that really are similar to the paper checks that you and 

I all write out of our checking accounts. These total 55 million during the period we 

reviewed. Finally, the government purchase card transactions that we have been discussing, 

all of you have been discussing, and those total $22 million. 

 I want to just spend a few minutes summarizing our review in those areas. First, in 

the grant and loan area, we found that certain edit checks and other key controls were missing 

from the education payment system. For example, Education Students Aid Application 

System lacked automated checks that would identify students much younger or older than 

you would normally expect to see. 

 Following up on our tests that identified schools with unusual concentrations of older 

students, our Office of Special Investigations, in coordination with the IG's Office, identified 

four schools that disbursed as much as $3.4 million in Pell grants to ineligible students. 

These students were ineligible because they were not participating in a degree program but, 

rather, were studying English as a second language. The investigation disclosed that at least 

one of the schools generated fraudulent student admissions documents to create the 

appearance that these students in fact were participating a degree program. 

 We in the department have identified a number of other schools with similar 

disbursement patterns that we are currently investigating. As you mentioned, Mr. Chairman, 

during our analysis of education's third-party draft payment process, we identified several 

additional internal control weaknesses that made this process susceptible to improper 

payments. 

 For example, we found 268 instances, totaling $8.9 million, where education 

employees circumvented a key systems application control designed to avoid duplicate 

payments. And this is the one you were mentioning, Mr. Chairman, where the policy manual 

actually told them to do this. Education officials are in the process of researching and 

providing supporting documentation for these transactions, which we will then test just to be 
14

sure that there were no duplicate payments or other types of overpayments that in fact did 

occur as a result of this control being circumvented. As you and the Deputy Secretary 

mentioned, this third-party draft process has in fact been eliminated now. 

 In the third area of our review, government purchase cards, we also found several 

internal control weaknesses, including serious deficiencies in the department's process for 

reviewing and improving purchase card transactions similar to what the IG's Office has 

found.

 During the time of our review, over one-third of the 903 purchase cardholders' 

monthly statements we reviewed lacked proper review and approval. In at least two 

instances, we noted these control weaknesses precluded education from detecting the 

improper use of the purchase cards. In one case, as Mr. Roemer mentioned, we did find that 

a cardholder made several purchases from a pornographic Internet site, and in another case 

we found that an employee used the card to pay for a training course that was totally 

unrelated to activities of the department. Proper supervisory review and approval of these 

transactions should have, in fact, identified them as improper payments. We also found that 

some employees were splitting purchases into multiple transactions in order to circumvent 

the department's limits on individual purchases. 

 The department is currently researching a list of 124 instances totaling $600,000 

where this circumvention of controls may have exposed them to improper payments. Again, 

as the Deputy Secretary noted, there have been some steps taken of late to improve controls 

in this area as well. 

 In closing, Mr. Chairman, I just want to emphasize the importance of education's 

management giving top priority to improving internal controls, and I think they have made a 

very good start based on what the Deputy Secretary has told us. The key is good tone at the 

top, and that is where it really all starts. 

 While our work thus far hasn't really identified a material amount of improper 

payments relative to education's total disbursements, the internal control weaknesses that 

allowed this to happen at all are still there and really make the department vulnerable to this 

happening again. So it is critical that these be addressed now. 

 The department has taken some very positive steps to address some of the problem 

areas, including establishment of the Management Improvement Team. There are other 

important actions that do need to be taken, and my written statement includes several 

recommendations in this regard. When we complete our work for you later this fall, we will 

make additional recommendation as necessary. 

 That completes my statement, Mr. Chairman. 

STATEMENT OF LINDA CALBOM, DIRECTOR, DIVISION OF FINANCIAL 

MANAGEMENT AND ASSURANCE, GENERAL ACCOUNTING OFFICE, 

WASHINGTON, DC – SEE APPENDIX E 

Chairman Hoekstra. Thank you very much. I think you are absolutely right in that the 

work that you have done doesn't necessarily identify numbers that are material, in that they 

are relatively insignificant to the total budget of the department. But what they do indicate is 

that there are weaknesses there in the management structure which make the department 
15

vulnerable to these numbers getting to the point where they might be material; although it is 

hard to go back to Indiana or to Michigan and say that a million dollars is not material. 

Again, only in Washington is a million dollars not a lot of money. It is still a lot of money in 

South Bend, and it is a lot of money in Holland, Michigan. 

Mr. Hansen, one of the things that frustrated us as we worked with the last 

administration is that some of the basic things weren't being done, one of which was that the 

checks or the invoices that are processed through the department, the checks that have been 

issued by Treasury and on a monthly basis. The department has a number that says we 

authorize payment of X amount, and the Treasury would say we have issued checks for Y, 

and that even though on occasion these numbers might vary into the millions and perhaps a 

billion dollars per month, there would be no reconciliation process on a daily basis. The 

difference between Treasury and education would not be reconciled until the end of the year 

when they had accumulated 12 months of these differences. 

 Where is the department now on moving towards quarterly or monthly reconciliation 

with Treasury to identify any discrepancies? 

Mr. Hansen. Mr. Chairman, we have moved to a monthly reconciliation system. As I 

indicated as well in my statement, this is very important for us. We cannot wait for the end 

of the year to get our arms around these. 

 One thing I would like to just state at the beginning, and it is coming from the private 

sector, these audits are an important management tool. I think that the Controller General 

had mentioned previously in another meeting that out of the 24 agencies that are auditable, 18 

of them got a clean audit last year and six did not. But out of the 18, half of those really had 

to do a lot of paper clip and rubber band and Band-Aids to get to their audit. Our very 

fundamental goal is to make sure that the audit is a pure audit, that it will be used as a 

management tool for us and not one that we just try to patch up at the end of the year to get 

us a clean audit. That really might do us some political good, but it will do us no good in 

managing our programs. So it is not just getting the clean audit but it is the quality as well, 

and that is why we are moving towards a monthly reconciliation process. 

Chairman Hoekstra. Thank you. 

Ms. Calbom, I think in your work you identified a number of instances where a single 

purchase was broken down into multiple payments so that the department's rules could be 

circumvented. I believe that you have, if I am not correct, there was one instance where an 

invoice that must have been over a couple hundred thousand dollars was broken down into 23 

separate payments; is that correct? 

Ms. Calbom. Yes. We had a number of instances along those lines, and in a lot of cases 

they turned out to be perfectly valid transactions. But the fact of the matter is there is a 

reason you have limits on these credit card purchases, and individuals need to stick to those 

limits. 

Chairman Hoekstra. That is right. There is a process in place, and even though the 

expenditure may be legitimate, if you start creating a culture that says, well, there are rules 

but there are ways to get around rules, that is when you end up with the waste and the fraud 

and abuse. Saying, hey, we are cutting 23 checks, maybe I can cut a 24th one to XYZ, and it 
16

may or may not be an appropriate expenditure. 

 Have you gone back and, as these cases that are identified like this one where a single 

expenditure was broken down to make it look like 23 different expenditures, have you gone 

back and taken a look at the management process to see whether this breaking down of that 

expenditure to 23 payments was authorized by management within the Department of 

Education. And if management did not authorize it, was the employee who made that 

decision, was there any kind of personnel action for circumventing the rules? Is that part of 

the culture within the department or not, or did you not take a look at that? 

Ms. Calbom. May I confer one moment with my colleagues? 

Chairman Hoekstra. Sure. 

Ms. Calbom. Thus far we have not gone back and interviewed those individuals that made, I 

think, the particular transaction that you are talking about. Again, that transaction turned out 

to be valid. But the question is did the individual do that of their own volition or did they in 

fact have instructions from their supervisors to do those split purchases. 

Chairman Hoekstra. I would be careful with the use of "valid." The payment was for 

services that were actually received by the Department, but the payment method was not 

valid, correct? 

Ms. Calbom. Correct. Absolutely correct. 

Chairman Hoekstra. If it was not valid, then somewhere along the line, somebody made a 

conscious decision within the department to break the rules and make that payment. I am 

hoping that as part of your work, and maybe we need to do some follow-up to understand that 

within the department as you now uncover these, or if those had been uncovered in the past, 

were they sanctioned by management who said just go ahead, or were there, what Bill was 

talking about; was there a culture of accountability that says if you are breaking the rules, 

sorry, we got you, you broke the rules, you can't do this anymore? 

Ms. Calbom. Yeah. Certainly we found, as I mentioned, a significant amount of these type 

transactions, which would indicate to me that it really was a culture that would say, hey, this 

is a rule but we don't have to follow it. And when you have that kind of environment, then 

that is when you have got the opportunity for fraud, and certainly abuse, to occur. So it is 

very important that these things get taken care of immediately; again, even though we haven't 

seen a lot of improper payments get through because the opportunity is there, you are very 

vulnerable.

Chairman Hoekstra. Yes. I mean if you have got a culture where people are saying we 

have got accounting rules but don't worry about it, we don't need to follow them, you can't 

audit $40 billion or 70 or $80 billion of payment. What you are doing is the tip of the 

iceberg.

Ms. Calbom. Exactly. 
17

Chairman Hoekstra. So if you have uncovered this, who knows what is going on, 

especially if you have got that kind of culture within the department. Thank you very much. 

Mr. Hansen. 

Mr. Hansen. Mr. Chairman, I'd like to point out that splitting procurements will be 

considered a procurement violation, and we are going to be training our managers to make 

sure that the managers will be responsible as well for any split transactions in the future. It 

will not be tolerated, and our employees will be trained that this is not a way to conduct 

business in the future. 

Chairman Hoekstra. Just one follow-up, if my colleague will indulge me. What does that 

mean, a procurement violation? Does that mean a reprimand in a personnel file? 

Mr. Hansen. It is, and this is something that can be used against the employee or the 

manager if they enter into and conduct a procurement violation. They have different 

standards that they need to adhere to, and this will be one of the standards they need to 

adhere to; and if not, then appropriate personnel action can be taken against them. 

Chairman Hoekstra. Thank you. Mr. Roemer. 

Mr. Roemer. Thank you, Mr. Chairman. I appreciate all your testimony. The GAO, 

Deputy Secretary Hansen, has testified that some schools were forging and falsifying 

documents on their student loans. Does this make an institution ineligible for future loans 

and grants, and for how long? 

Mr. Hansen. It could. It is part of the program review, and if there is fraud that is taking 

place, there could be program review actions taken against the institution, or the Inspector 

General could come in with a separate action against the institution. 

Mr. Roemer. Do you intend to recommend that type of action to the Inspector General so 

that institutions that the GAO has pointed out has falsified documents and submitted these 

forged documents to get government money should be penalized? 

Mr. Hansen. Absolutely. And any instances of fraud or abuse will be transferred over to the 

Inspector General for investigation. This is where the institutions will also have their due 

process to be able to point out their perspective of things, but that is the role. In fact, frankly, 

some of the indictments in the other issues that the Inspector General testified about earlier 

are indeed, in many instances, the types of things that are not transferred from the program 

office for other types of investigation. Some are them also are investigations that the 

Inspector General's Office turns up by them. 

Mr. Roemer. Ms. Lewis, will you pursue these cases, and what is the penalty for these 

institutions if, in fact, it is proven that they did falsify and forge documents to get these loans 

or grants? 

Ms. Lewis. Sir, we do have ongoing investigative work relating to these schools. Three of 

them we had started previously and, in coordination with the GAO, are making referrals on 

another four. We will follow it diligently. 
18

Mr. Roemer. If they have done it, what is the penalty? 

Ms. Lewis. Well, if there were criminal conduct, then we would work with the U.S. 

Attorney's office. That may lead to criminal charges. 

Mr. Roemer. Against the individuals. 

Ms. Lewis. It might be institutional. It might be individual. It would be up to the U.S. 

Attorney's office to make that determination. In fact, one of the schools that we are 

investigating our investigation opened up, because we had in 1996 conducted an audit 

relating to that school and found problems, there was enough there that led us to open an 

investigation.

Mr. Roemer. Okay. Secretary Hansen, it is pretty evident that employees have access to 

three different cards at the Department of Education: one card for small purchases of 

different things to hopefully try to save money, a second card to travel, and a third card to 

pay for car payments and repairs and gasoline and so forth. 

 Has the department looked at consolidating the number of cards out there as well as 

trying to find ways to improve internal controls? 

Mr. Hansen. Most employees don't have cards. 

Mr. Roemer. How many have three cards? 

Mr. Hansen. I would say very few. 

Mr. Roemer. What is very few? Are we talking about 200? 

Mr. Hansen. Probably less. Let me get to the raw numbers. The employees of the 

department who do travel will have a travel card that is a regular credit card that they will use 

for their travel. The purchase cards are limited to about 250 employees in the department. 

These purchase cards are the executive officer-type positions in most of the offices. 

 Out of the 250 people that do have these purchase cards, 225 of them have a $2,500 

limit or less, so that somebody in an office can buy supplies, some computer software or 

something like that that they might need for the office. And that purchase card can only be 

used for those activities. It cannot be used for travel or whatnot. Most of these executive 

office-type people aren't going to be traveling in relation to their job, so they will usually 

have that card specifically for their purposes. 

 The other 25 cards are limited to $30,000, and we have about 25 principal offices in 

the department. So this really aligns up to about one person in each office has a business 

card, has a purchase card that will be available for them to use up to $30,000. That allows 

them; again, if the office needs to buy five new computers, they don't have to go through a 

purchase order-type of process. 

 We did have to change this dramatically. When we first started looking at this issue, 

there were a number of employees that could go up to $300,000 with this use, and we have 

knocked down everybody's purchase card amounts so that we only have two series of people; 

one person pretty much in each office that can go up to $30,000; and then, as I indicated, 
19

about 225 employees that can go up to $2,500 for very small purchases. Again, most of those 

people probably do not have a travel card because the function of their jobs would not require 

them to travel. So people aren't walking around with two or three cards in their pockets to 

handle their day-to-day activities. 

Mr. Roemer. Again, let me emphasize that many of the concerns here are not only the 

number of cards and the limits on these cards and making sure that you guys get control of 

that, but also making sure that the internal controls are sufficient to point out and find 

problems and detect those problems when you are splitting costs and you are trying to do 

things to disguise what you might be actually purchasing. 

 Let me just ask one last question and then maybe we would have one final round, Mr. 

Chairman. You said, Mr. Secretary, that you have addressed 300 of 661 audit 

recommendations. When you say "addressed" those, do you mean that you have solved those 

300 problems, or you are in the process of trying to resolve those problems? 

Mr. Hansen. That is a very good question. One of the primary issues that we first got our 

arms around when we started this effort was to not even just make sure what is closed and 

what is open, but also what is the quality of when something is marked off as closed, what is 

the quality behind that check. About a hundred of the recommendations have been closed 

and I feel very secure they have been closed with quality check offs. This is a joint effort 

with the Inspector General's Office, our Financial Management Office, as well as, you know, 

the Budget Office and others. 

 There are 200 of the recommendations have corrective action plans, which means that 

they are very close to being moved over into the closed category. We just have to work out 

the issues internally to make sure that the quality of the corrective action plan to meet that 

individual problem is a reasonable response to that problem, and that the activities that we are 

taking can actually move that into the closed category. 

 This is also a very fungible listing. As time goes on we always have new issues come 

in that we have to wrestle with. Whenever we close some out there are also new ones 

coming into the pipeline that we must address. 

Mr. Roemer. So that means the remaining 361 outstanding issues aren't even in corrective 

action? 

Mr. Hansen. We are working to get them there. 

Mr. Roemer. All right. Thank you. 

Chairman Hoekstra. As we also know, that sometimes in the last 361 is the 20 or 30 that 

are the biggest issues to resolve. But thanks for that. It has got to be an interesting dynamic 

for the three of you to work together, the independent watch groups, you know, auditing and 

monitoring, at the same time providing you with the input and the feedback that says here are 

the types of things you need to do make sure that these problems don't reoccur in the future. 

Mr. Tiberi. 
20

Mr. Tiberi. Thank you, Mr. Chairman. Mr. Secretary, following up on the last question, the 

661 recommendations that you were faced with in April, how long had those been on the 

table and where did they come from? 

Mr. Hansen. Some of them have been on the table for a very long time. A lot of these 

issues, as Mr. Hoekstra indicated, come from IG, come from your reports, come from our 

audit with Ernst & Young, who is our outside auditor, from recommendations from the 

General Accounting Office. Basically they have come in from different places. One of our 

tasks was just to get them all put together and assembled so we knew exactly what mountain 

we had to climb and how high that mountain was to get there. 

 One point I would just like to add on to Mr. Roemer's question is that on page five of 

our management report issued last week, we have tried to prioritize between high, medium 

and lower priority of the 661 open issues. We have determined that 229 of the 661 were high 

priority. That means those are the ones we have got to take care to have a clean audit to get 

the student aid programs off the high risk series. And of those, we have closed 49 and have 

corrective action plans for 87, which is about 60 percent. So we are probably a little under 45 

percent department wide. But we are obviously putting our priority on those top priority 

items. 

 Some of these other items, frankly, are third tier issues on some technology issues 

that are important, but they are not critical to our systems, and for us to get a clean audit. 

Mr. Tiberi. But some of those recommendations came from GAO and some came from the 

IG?

Mr. Hansen. Right. 

Mr. Tiberi. You mentioned in your testimony the split transactions and violation within the 

new manual. If someone violated that policy, would that be a cause for termination? 

Mr. Hansen. It would depend again on what the action was. If there was any fraud 

involved, if there was an inappropriate use of paying for a conference, where instead of they 

should have gone through a procurement process to hypothetically pay for $50,000 to a hotel 

to run a conference and they used it five times, $10,000 each, that would be what we would, 

you know, go after administratively. But I don't think that would probably be the level of 

termination. But if there were fraud involved, if there were other activities involved, each 

case would have to be based on what the issue was. 

Mr. Tiberi. Thank you. Ms. Lewis, over the three-year period of the audit that failed and 

the mismanagement and the investigations that you have been involved in and your 

predecessor was involved in, how many department employees have either been fired or 

resigned? 

Ms. Lewis. We know relating to the telecommunications case that I mentioned in my 

testimony that four employees have resigned. 

Mr. Tiberi. How many? 
21

Ms. Lewis. Four employees specifically in that case have resigned as part of their plea 

agreements. There are another four employees who are indicted. They are currently on 

suspension without pay. I will have to get back to you for the record to line up for the last 

two or three years other statistics that we can draw on, from our semiannual report or other 

public information. It also may require consulting with the Personnel Office or the General 

Counsel's Office in terms of any administrative actions that have come out of any of our 

work.

Mr. Tiberi. Just one follow-up; how many vendors have been thus far folks outside the 

department, non department employees, how many have been indicted thus far? 

Ms. Lewis. In the telecommunications case, there were a total of 19 individuals; 11 of them 

are persons outside the department. Four of them have already pled guilty, so there are a 

number of family and friends of the key individual department employee who perpetrated the 

fraud, and then there are some vendors. Two of the contractor employees have already pled 

guilty. So that is talking about the telecommunications case that I had in my statement. 

Mr. Tiberi. Thank you. Thank you, Mr. Chairman. 

Chairman Hoekstra. Ms. Davis. 

Ms. Davis. Thank you, Mr. Chairman, and I am sorry I missed all the testimony. Have you 

ascertained exactly when you think there would be a clean audit? What is the time frame? 

Mr. Hansen. The secretary committed in early April that we would have a clean audit in the 

next 18 months. That would be at the end of the next fiscal year, and he reiterated that last 

week at our press conference when he said that within the next 15 months our goal is to have 

a clean audit. April 1, when we first got into this, and actually at that time the secretary was 

still home alone, and there were no other people confirmed for senior management positions. 

Hopefully, by the end of this fiscal year we will have our whole team in place so that we can 

get this done by the end of the next fiscal year. He also committed before the reauthorization 

of the Higher Education Act as well that we would have the student financial aid programs 

off the General Accounting Office's high-risk list. Those are two very concrete commitments 

that the secretary has made to the public and to the Congress. 

Ms. Davis. In the very short time that I have had a chance to listen, obviously, there is a loss 

of control, I think. But could you just tell us, what do you think was the key problem that 

was going on? 

Mr. Hansen. I think there are a number of issues. One is if a program is fundamentally 

flawed from its design, it is going to bring about management and review challenges with it. 

The second is the fact that I don't think that the audit system or software or processes have 

been employed. Again, from private sector experience, these audits are just very helpful 

management tools, and should not be just a bureaucratic process to meet this goal, but to have 

it be a quality process. I think that there were a number of issues. 

 I think the fact that Mr. Hoekstra mentioned in his testimony that there has been 

maybe lack of senior personnel, which might be construed as lack of attention to some of 

these issues, a lack of priority, you know, that is what we could conjecture. 
22

The secretary is very committed to looking forward and not looking back, and so we 

are trying to, that is the reason that we put the team together and that we are looking forward 

to our future goals and a lot of the issues of what people have been looking into for the last 

couple of years are symptoms of an overall problem. And some of these issues get back to 

the culture of the department as well. If there is complacency three, four, five layers down 

into the systems, then you are going to have some breakdowns, and that is where we need to 

make sure that our training and our systems are in place, and that there are direct lines of 

accountability and that people are held accountable for some of the actions that Mr. Roemer 

talked about earlier, that people will be removed or dismissed or suspended from their offices 

if there are activities going on that are clearly wrong. 

Ms. Davis. Interesting. Thank you. 

Chairman Hoekstra. Mr. Schaffer. 

Mr. Schaffer. Thank you, Mr. Chairman. I have got several questions, but my first stems 

from the issues in the GAO report about the, I think it was 900. Let me find the portion of 

the testimony specifically. About the Pell grants that apparently are issued to, in 900 

incidents, people who appear to be dead. I would like to ask a little bit more about that total, 

$2.7 million, according to the GAO testimony today and in a few of those instances, some of 

that money, some of that money has been well, you identified $43.6 million in potentially 

improper payments. The department said that it provided sufficient supporting 

documentation for 18.7 million. That is less than half, about 42 percent of those payments, 

and they are still searching for the rest. But 900 instances of cases where a Pell grant Social 

Security application number also coincides with the Social Security Administration's death 

records seems an alarming figure. 

 I am curious, could you speak a little bit more about that and let us know whether 900 

just seems alarming to me, or should somehow Americans feel comfortable with that figure? 

Ms. Calbom. Yeah. That is an issue that is continuing to be researched. What we did is 

match the Social Security numbers, some of the applicants, with Social Security 

Administration. Or actually, we ask them to do it for us. 

Mr. Schaffer. Let me stop you. How difficult is that to achieve? 

Ms. Calbom. It is really not difficult, and in fact the department is starting to do that 

themselves now. 

Mr. Schaffer. Let me just ask you, why did it take the GAO to come in and figure out that 

you can match death records with applicants? 

Ms. Calbom. Well, I think now there are a number of things that you can do to test for 

improper either Pell Grant or loan disbursements using computerized auditing techniques. I 

think, you know, this is something that I won't say it is new, but it hasn't been used a lot in 

certainly the public sector, but I think it is becoming more and more a tool that people are 

aware of. In fact, GAO issued recently an exposure draft on strategies to manage improper 

payments, where we went out to various public and private sector organizations and 

identified tools such as these matching techniques and others that can be used in this. 
23

Mr. Schaffer. Let me jump to one of the other techniques you used with respect to the age 

trigger on Pell grants. Now, you set that trigger at the age of 70, and that exposed a potential 

of I think $3.4 million, according to your testimony. That is just from a handful of schools as 

well. Your recommendation was to establish a similar kind of trigger. The department came 

back and said the trigger they would set was 80, or 85. 

Ms. Calbom. Yeah.

Mr. Schaffer. 85 years of age. 

Ms. Calbom. Yes. That they were going to use a trigger of 85, which we felt was really too 

high. Actually, to find the fraud that we did identify, we even dropped the age limit down 

more. I believe the department now has plans to use a lower age limit. 

Mr. Schaffer. Can you verify that? 

Mr. Hansen. Mr. Schaffer, we are looking at a more appropriate age limit. I frankly think 

70 is probably a reasonable number to look at. If you start bringing it much lower, you bring 

into play an awful lot of parent loans into the data base of parents that have loans that are 

putting their kids through school, and I think it would be a more difficult task to really use 

this as a quality check. So we could come lower, and we are looking at that right now. But I 

think we agree with the GAO that, you know, 70 is probably a good place to start from. 

Mr. Schaffer. Regarding the duplicate payments, the third party draft process, I know it has 

been eliminated at the department; but as I understand, employees were actually adding digits 

to the check numbers in order to circumvent, deliberately circumvent the department's control 

application or their application control design. That has been resolved. And my question is 

along the lines of some of the others that have been asked here. At some point, somebody 

made the decision to add those digits and to violate the department's policies. And since this 

seems to take place through several different agencies within the department, it suggests that 

there is a cultural malaise that has somehow allowed employees at the management level 

down to the subordinate level that policies are there to be ignored and that depending on 

whims, I suppose, they can be violated. 

 You know, a lot of money has been lost through that particular process, and I am glad 

that we kind of figured out finally what the source of it was and seem to have resolved that. 

But ultimately, someone is in charge of making the decisions to violate policy. I want to 

know if they have been identified. And we don't need to know names. But I want to know 

who has been fired or who has been demoted or what specifically has happened, because 

absent of that, I am afraid that all your other policies will also be ignored unless there is swift 

and sure and very public response within the agency to deliberate efforts to circumvent 

department policy. 

 So let me ask, what has happened to the people who deliberately decided to violate 

the department policy in a way that has cost our taxpayers an estimated $450 million? 

Mr. Hansen. Mr. Schaffer, the activities you talked about are being taken very seriously. 

As I indicated, I have been on board for about two months now, and we are getting our senior 

management team in place to make sure that these efforts are being appropriately handled. 

The secretary has made it very clear that managers are going to be held accountable, and we 
24

take this very serious. 

 We are instituting training programs with our new policies in place so that there will 

be no excuses from people not understanding what the dos and don'ts are of this process in 

the future, as well as going back and cleaning up the mess. A lot of these issues have just 

pretty much landed on our lap in the last couple of weeks from abuses of years ago, and we 

will get those taken care of and let you know what specific actions take place in each of the 

instances that you asked about. 

Mr. Schaffer. Mr. Secretary, I can appreciate that you may not have the answer to the 

question here. But let me just ask, is that a question that can be answered? Can I find out 

what happened to the managers who allowed this deliberate effort to circumvent policy, what 

has happened to them? What response has been taken? Is that a question that can be 

answered by the department? 

Mr. Hansen. Sure. We will. 

Mr. Schaffer. Thank you. 

Chairman Hoekstra. I think that is what I kind of followed up on, what I asked Ms. 

Calbom before as to whether their work will include taking a look at, you know, who 

authorized or who went around the rules, who authorized it and whether, you know, there 

were any consequences to that, because I think the bottom line is that once you start 

encouraging through the management structure that breaking the rules is okay in this area, it 

becomes a systemic problem and they say, well, if I can break the rule in this area, the rules 

in this agency must not mean a whole lot and I guess I can do it over here as well. 

 I guess the question there, you know, following up on Mr. Schaffer and what I had 

asked earlier, is that going to be a part of the fraud audit process that GAO is currently 

engaged in, or should we address and sit down with GAO or with the department? I think it 

may be more appropriate to go to GAO because we are going back and you have got enough 

work, Mr. Hansen, in taking a look at where we are going to go in the future. But taking a 

look because maybe it is the IG that we need to work with, with Ms. Lewis, and say, you 

know, we have uncovered these, the example, and the 23 payments broken out. Who 

authorized it? Do you know, were there any sanctions taken, or in any of these number of 

cases where management appears to be involved and sanctioned and maybe encourage this 

type of behavior, were there any sanctions or any personnel actions as a result of those types 

of decisions? 

Mr. Hansen. Mr. Chairman, when Jack Martin hopefully will be confirmed by the Senate to 

be our new CFO and once our Assistant Secretary for Management is likewise confirmed, 

these issues are very much directly under their wing, and every Assistant Secretary and every 

senior officer having a performance contract with the secretary. They will and they will be 

held accountable to put in place the process to ensure that these types of activities do not 

occur again. And if they do occur there is line of accountability down the line for people to 

be held accountable. So we are going to be setting very clear standards, and we are going to 

be offering up the training, and we are going to make the expectations very clear to people 

and we are as the Secretary said, there will be no excuses and there will be some 

accountability in getting our arms around any instances that have occurred or that would 

occur in the future. 
25

Chairman Hoekstra. Miss Calbom. 

Ms. Calbom. If I could just add one other recommendation to that, and that is there be a 

systematic process that the department uses to go in and test transactions on an ongoing basis. 

I mean it is very important to monitor whether or not you know the changes that you have put 

in place are actually being followed. I would suggest that there be a selection of transactions, 

you know, in whatever area you are talking about. In this case we are talking about purchase 

cards on a periodic basis, and that the department actually test to make sure that their policies 

are being followed because that is really the only way to properly monitor that your controls 

are working. 

Chairman Hoekstra. Yes, but I think the question that Mr. Schaffer is asking is a little bit 

different, and I think I am asking it and I think maybe Mr. Roemer has an interest in this as 

well. In the past when people violated the rules were people held accountable for violating 

rules? Secretary Hansen has made it very clear that in this administration they will have a set 

of rules. These rules will be the guidelines. They will be the standard operating procedure 

by which the department will work, and if people violate the rules they will be held 

accountable. The question that we have is beginning year four of this process for us, and we 

are kind of frustrated, and it is kind of like, did the process break down? We are trying to 

figure out, what went wrong and that if part of the process was in the previous department. 

When people broke the rules it was not only so what, but they were encouraged to break the 

rules by management. Then we can say, well, hey, what Mr. Hansen here is proposing and 

the new administration is proposing is that we are going to hold people accountable. We say 

great. That looks like a different culture. It looks like we are going to move forward. Now, 

if we go back and look in the previous couple of years and find out that they did that in the 

old administration and say, yeah, we are just continuing the same policy, we need to go 

further. But if we find out something different today, no. Not only that, we had management 

actually encouraging people to go outside of the rules that make it easier, make it quicker and 

whatever, and say okay, all right. This is a definite change we can expect, you know, we can 

expect a change in results because the performance standards are different. 

 I think what Bob and I are saying is you are going to get a letter where we are going 

to express our appreciation for you identifying all of the waste, fraud and abuse that you have 

identified. We appreciate that because we have a better understanding of what works and 

what does not work in the system. Now, what we want to do is we want a background or an 

evaluation of the people that were involved in this and that were involved in the decisionmaking. Ms. Lewis can tell us the number of people who have been indicted for these kinds 

of activities and go through that process so that we can know what happened to the person 

that said, hey, this invoice from Holiday Inn for 230,000 bucks, it should go through this 

process but, heck, that is too much work. I have got to fill out this paperwork. Let's just do 

23 third party drafts, okay? Who sanctioned that? Or was somebody held accountable and 

said, hey, that is not the way we do things here. We know you did it but this is now going in 

your file because that is not how we work here. 

 Thanks. Ms. Sanchez. 
26

Ms. Sanchez. Thank you, Mr. Chairman. Unfortunately, I had some other commitments so I 

missed much of the dialogue that went on from this panel, and I apologize to you who came 

to present. You can probably note up here that we are a little frustrated at this process now, 

having been involved with this for several years. I have one question that I would like to 

have a little discussion on, and this is this whole issue of the year-end audit. I know that we 

have a better audit this year than the last time around because one of the things that did 

happen was we were able to put in interim statements, I think, on a quarterly basis, at least 

March and June, and my question really is, in this new audit, are we still closing it out 

manually? I'm not talking about the auditors who come in. The last time I remember we 

were doing manual close outs and manual transactions on a lot of the statements and we had 

put some money into the budget to get a new computer system in and try to get a lot of this 

tied out automatically, you know an automated system. Where are we with that? And again, 

if this is repeated, I'm sorry. And if you spoke about that, I am sorry about that. But I wasn't 

here to hear that. 

 I guess I am anxious to hear, you know having been an auditor myself, where are we 

on the computerization of this because it seems to have been a major, major problem and I 

would like to know where we are. And I know that we are not there yet, but what is the 

process for this, and when will we actually see this happen? 

Mr. Hansen. That is a very good question, Congresswoman. The department has been in 

the process now for the last several months of implementing a new Oracle financial 

accounting system for both the student financial aid accounts as well as, you know, the rest of 

the department within our CFO's office at the department. Hopefully, with this new system 

of software we will get to the point where we won't have all of the manual challenges and 

inputs that were required and we are trying to get there. 

 Frankly, though, this year, in this fiscal year we still are, you know, very much 

involved in an awful lot of manual work and that is what I was talking about earlier, where 

you know an audit can serve as a helpful business tool if it is done right and if it is laid out 

right at the beginning and you have the right steps in place for a monthly reconciliation 

process along the way to get you a clean audit. If you are limping along throughout the year 

and try to Band-Aid it at the end of the year to get a clean audit, again, you might reach a 

political objective but it hasn't served a management purpose for you. 

 Obviously our clear goal is to use our new Oracle systems to ensure that it is a finetuned system that we can use both from a technology standpoint, but as well as from a 

systems standpoint within the Department to make sure that we know exactly where we are 

every month and we will get there at the end of the year. 

Ms. Sanchez. So what you are saying still in this past year, and even currently, you are 

working really on a manual system and closing out, what, are you closing out every month or 

I saw that you had March and June dates. So are you doing, trying to attempt to reconcile 

every three months? 

Mr. Hansen. Our direction right now is to do it every month and that is a combination of 

manual. 

Ms. Sanchez. And some computer spreadsheets. 
27

Mr. Hansen. Computer spreadsheets. 

Ms. Sanchez. But not a real program that attempts to tie things out and then you come back 

in manually and fix what needs to be fixed as most businesses? 

Mr. Hansen. Right. 

Ms. Sanchez. And I would assume that these programs that you have are tailor made for the 

department, these new reconciliation and tie-out programs for the audit, in getting your 

statements ready? 

Mr. Hansen. They are. 

Ms. Sanchez. To serve that purpose. 

Mr. Hansen. We do have the two systems and the two are very much being woven together 

right now. And Oracle is able to do that. But the designs for the student aid piece as well as 

the designs for the rest of the department are very different. There are some, the department's 

discretionary money, which is basically money going out the door to track, which is about 

$45 billion, is very different than the student loans, which are $35 billion, that have to be 

repaid, and so there are some different elements in both of the two designs, but Oracle has 

been working with us to make sure that the two of them are woven together to make sure that 

we get one output for the department as a whole. 

Ms. Sanchez. And again, give me a date of when you think these two will be in place and 

after you, you know, runs and test runs. When do you think you will have a smooth system 

running with respect to these systems? 

Mr. Hansen. I hope within the next couple of weeks. Realistically, we have got to get 

through this fiscal year with cleaning up and working with while we are really only having 

three to six months to do a year's worth of work from a management standpoint, the secretary 

has indicated that we will have a clean audit by the end of next fiscal year and so our systems 

will be in place next year to make sure that we have a process in place to get us to where we 

need to be at the end of next year. 

Ms. Sanchez. I don't know it is a possibility but I would ask that you might report back to us 

at some point when you do have the system up going. I think this is something that we have 

been attempting to do now for several years, and it is sort of the date continues to move out 

and, you know, I at least would like to know when you have become automated in these 

processes. 

Mr. Hansen. Absolutely. And the secretary, when he held his press conference in midApril, said he would report back in 90 days. He did that last week. And we say we are going 

to report back at the end of September. We will be back to you at the end of September. 

Ms. Sanchez. Thank you. That is all I had to ask, Mr. Chair. 

Chairman Hoekstra. Thank you. I guess that is an invitation for you to come back. 

Mr. Hansen. Oracle will be live on October first and I will be here with it. 
28

Chairman Hoekstra. All right. 

Mr. Norwood. 

Mr. Norwood. Thank you, Mr. Chairman. Mr. Hansen, well, no, all three of you, no, all of 

us, including this subcommittee, but particularly Mr. Hansen, do you believe that Congress 

now seeks to undermine the integrity of the Department of Education by daring to question 

the department about its financial management? Does anybody believe that here? 

Mr. Hansen. I absolutely do not believe that, Mr. Norwood. In fact, I indicated that in the 

very first paragraph of my opening statement. 

Mr. Norwood. Thank you. That is good. I have got a lot of questions. Does anybody on 

the panel believe that we are actually trying to impugn the integrity? Well, I don't believe 

that. I think it is our constitutional duty to do exactly what we are doing. But it is of interest 

to me, Mr. Chairman, and you asked the question, how did we get to this, and my answer to 

that comes in an op ed piece that was written by the former secretary who wouldn't talk to us 

at all when he was the secretary, but now that he is not the secretary is talking to us through 

an op ed piece in Education Week. And Mr. Riley said that Congress now seeks to 

undermine the integrity of the Department of Education by questioning its financial 

management. 

 That is why we got to where we are. Nobody cared about financial management. 

And I commend you, sir, for allowing us to look into this and do our duty. Mr. Hansen, you 

said, I believe $80 billion, what you folks spent, just for my own interest. 

Mr. Hansen. That is correct. 

Mr. Norwood. I believe that is an 8 with 10 zeros. That is how much money you have to 

control and make sure there is no waste, fraud and abuse, et cetera. Can you do it? 

Mr. Hansen. Pardon? 

Mr. Norwood. Can you do it? 

Mr. Hansen. Yes, we can. 

Mr. Norwood. How many people are you going to use to oversee 8 plus 10 zeros? 

Mr. Hansen. The department has roughly 4,600 employees and several thousand-contract 

employees that and again, half of that money is money that goes out the door to 16,000 

school districts, 55 State entities. 

Mr. Norwood. You are telling me it can be done. 

Mr. Hansen. Absolutely. 

Mr. Norwood. Ms. Lewis, can it be done? 

Ms. Lewis. Yes, sir. 
29

Mr. Norwood. It can be done with no waste, fraud and abuse? 

Ms. Lewis. No one can ever state to you, sir that waste, fraud and abuse won't occur. 

However, it is absolutely important that the systemic issues be addressed relating to internal 

controls.

Mr. Norwood. Ms. Calbom, you are an accountant. Can't you put in a system so the 

taxpayers of this country can have some assurance that the 4,600 employees of the 

Department of Education can make sure that the $80 billion of taxpayer money doesn't 

include waste, fraud and abuse, and it may, but can't you catch them immediately under a 

good management system? 

Ms. Calbom. Well, it is all about how much money you want to spend in doing it. And 

what we always recommend is that a comprehensive risk assessment be done first to identify 

where are the greatest risks and you focus your resources in on those areas to make sure that 

you have got, solid controls. There are always going to be private sector, public sector, 

whatever, there is always going to be some fraud that occurs. It might be small. The key is 

where is my biggest exposure to it. Let me tackle those areas; make sure I get it nailed down 

solid so that it won't occur there. And as you can, you move into the other areas that are less 

risky. 

Mr. Norwood. Well, the former Secretary Riley said that we conservative partisans are 

complaining about $450 million, no matter how much came back; at least we know that it 

was directed in the wrong direction. Some of it has come back, some of it won't. 

Ms. Calbom. Yes, sir. 

Mr. Norwood. My question basically was will we have the wherewithal and the willpower 

to make sure we don't waste any more taxpayer dollars in the Department of Education? I 

believe perhaps it can be done, too, and I believe it is a question exactly as you put it, Ms. 

Calbom, is how many dollars does it take? And then that thought leads us on down the road 

a little bit about the cost effectiveness of a lot of this. One of you said in your testimony, 

forgive me I don't remember which one, about the credit cards. You were talking about the 

credit cards and Secretary Paige has moved that a long way, I believe, and improved that 

greatly. I commend him. 

 By the way, Mr. Hansen, if everybody who had a credit card today at the Department 

of Education went out today and spent it to its limit, what would be, at that point, the 

taxpayers' liability under the new system you have put into place? 

Mr. Hansen. If the question is on the purchase cards, there are 225 employees that have a 

2,500 limit. And I used to be very good at math. 

Mr. Norwood. That is all right. We can figure that later. 

Mr. Hansen. And there are 25 additional employees that have a limit up to $30,000. And 

again, those are for office type purchases. 
30

Mr. Norwood. Are there any limits, besides the limit in other words, I know every credit 

card has some cutoff you can't spend beyond. But for example, in your travel cards, are there 

any limitations on how you spend that money? And you alluded to a $50,000 overnight 

weekend versus one that could have been done for 10. 

Mr. Hansen. There are limits and the executive officers and supervisor for each of those 

employees manage each of those, and I can get you more details about the way that that 

system works. 

Mr. Norwood. I just want to know if you are overseeing that. 

Mr. Hansen. Absolutely, sir. 

Mr. Norwood. Is that new or old? Have we been overseeing that? I have heard of some 

pretty nice trips. 

Mr. Hansen. Congressman, the trips that are taken also have to be reviewed up the chain of 

command and approved, and then the actual expenses are likewise approved by the executive 

officer in each office. And again we are trying to instill standards and accountability 

throughout. There may be pockets of misuse that we are getting our arms around, but we are 

trying to have clear standards and a clear process in place to make sure that those don't occur. 

Mr. Norwood. Mr. Chairman, I need about 20 more minutes, but I see the red light. 

Chairman Hoekstra. The gentleman's time has expired and there are no zeros left. We will 

have another round of questioning. I will yield my time to Mr. Tiberi. 

Mr. Tiberi. Thank you, Mr. Chairman. This document, there is a whole lot of information 

in here to digest. Poor internal control exposes Department of Education to improper 

payments. And through the document there clearly is fraud, misuse, abuse, and maybe just 

expensive mistakes as well. I am new here. What I don't understand and I am going to open 

this up to all three of you, does it take an indictment for someone to be held accountable, that 

can be fired or resign, for a federal employee? 

Mr. Hansen. It shouldn't take an indictment. And that is, again, when we talk about, you 

know, a change in the culture to make it a culture of accountability in the department; that 

this be done from the very top, and frankly, I think if we can get the programs created from 

the foundation correct, if we could then get our financial management audit system in place 

to be a management tool for us, if we can get our Government Performance Results Act put 

in place, all of the other cultural and training pieces put in place, 99 percent of the department 

folks, I think, will be employees will be very, very helpful and supportive of moving that 

agenda forward and being very much on top of improving the culture. 

 I think as somebody indicated earlier, that no matter what we do, I don't think we can 

put the best systems or the best programs in place. There still will be instances of fraud and 

abuse that we will have to go after through legal means through the Justice Department 

working with the Inspector General, and that goes for our contractors as well. 

Mr. Tiberi. But it doesn't take an indictment, Ms. Lewis? 
31

Ms. Lewis. The important thing is following up on Mr. Norwood's point as well as the GAO 

did put out standards to apply across the government for internal controls. And those are the 

systemic issues that need to be addressed. One of the areas is the control environment, and 

the support from on high for good accountability, good controls. The risk assessment should 

be done. Control activities, good policies and procedures in place. For example, we 

recommended to the department that it update its credit card directive that had been out there 

since 1990, and there had been some pen and ink changes to it. Well, as far as the training, 

all the card holders and their supervisors and their approving officials should know what the 

current policies are and should be able to see it in one place, perhaps up on the web, which is 

where we are all being directed to go to find it easily. 

 Information and communications, monitoring. We are a monitoring office. GAO is a 

monitoring office. The department also should require monitoring perhaps, as Ms. Calbom 

suggested. At the request of the department, we went office by office through the 

Department of Education. We issued reports to each Assistant Secretary and office head. 

But before we issued those reports, we sat down with the head of the office and his or her 

executive officers and identified the types of problems we found. I have also made copies of 

those documents and provided them to the incoming, or the nominees for the positions, the 

Assistant Secretary and the other heads coming into the department as I have met with them 

and provided some material relating to the management challenges that face the department. 

 I have also taken the opportunity to provide the individual report about the office they 

are about to lead and remind them, and emphasize what I am sure they are already well aware 

of from Secretary Paige, the importance of their job of being the manager, not just the 

responsibility for the programs, but also the managers of their own offices. 

Mr. Tiberi. Do you have a comment at all? 

Ms. Calbom. I was just going to say, a lot of what the Inspector General is talking about is 

laid out specifically as it relates to improper payments in this executive guide draft that GAO 

has just recently issued, and we have supplied this to all of the IGs and CFOs within all the 

agencies in the federal government, at least the major agency thus far. But it really does start 

with as I said, the tone at the top. And it is just critical that every employee understand that 

improper payments are not acceptable and won't be tolerated. 

Mr. Tiberi. What it seems to me is that with a handful of employees, either resigning or 

fired over the course of three years, with all this happening, it seems to me that the tone has 

to change, the culture has to change, or it will continue being, even if you implement these 

controls.

 Thank you, Mr. Chairman. 

Chairman Hoekstra. Mr. Roemer. 

Mr. Roemer. Thank you, Mr. Chairman. Secretary Hansen, just following up on my 

previous questions to you, we talked about 661 recommendations. You have closed 100 of 

those. You have 561 outstanding. How long will it take for us to get those addressed and 

closed? 
32

Mr. Hansen. Mr. Roemer, we, again, on page five of our report, prioritized these activities 

and some of the lower priorities. Frankly, we are going to try to get after them, but we are 

going after the highest priority items first because they are the ones that will get at our 

systemic problems, get at our fundamental problems, get at some of the fraud and abuse 

problems. And so I would just draw your attention to those 229 items, of which we have 

closed 49 and have corrective action plans for the other 87 and have about 70 left to go that 

our goal is to get those done by the end of this fiscal year, but some of them are going to spill 

over, frankly, into the next fiscal year to get those done. 

Mr. Roemer. So you have outlined that we will get a clean audit in 2003, and that we will 

close the remaining 561 audit recommendations in the next year? 

Mr. Hansen. We will close the recommendation. I am not going to put a time frame on it 

because some of them are not critical issues. We are going to for management purposes get 

every one of them addressed as quickly as we can. Again, our goal is to get the top priority 

ones done as quickly as we can in the next three months and then over the course of the next 

year, fiscal year 2002, to have a clean audit by the end of fiscal year 2002. 

Mr. Roemer. But you gave us a date on the clean audit. You won't give us a date on those 

other 561 outstanding issues. 

Mr. Hansen. I just don't know every single one of these off the top of my head to know if it 

is reasonable for me to make that promise to you. The promise is we will have a clean audit, 

get our student financial aid programs off the high risks series and embedded in that is to get 

these taken care of, and so we will get each of them. 

Mr. Roemer. Hopefully within a year. 

Mr. Hansen. Correct. 

Mr. Roemer. Okay. Ms. Lewis, I am always curious when we hear this 450 million figure 

of losses discussed, I have a letter here from Secretary Paige that says out of the 450 million 

in purported losses, that 250 million has been fully recovered and there is no financial loss 

occurred to the taxpayer. Is that correct? 

Ms. Lewis. Yes, sir. That was a figure that I did testify to at the last hearing and the figure 

relates to improper payments. 

Mr. Roemer. Okay. Well, let me just go back through in detail. So 450 million is tossed 

around, but 250 has been fully recovered and we hope those people responsible are 

prosecuted and that, you know, civil or criminal penalties are then pursued. So we have 250 

million remaining, correct? Out of that 250 or 200 million remaining, out of that 200 million 

remaining, in this letter from Secretary Paige, he states that another approximately 40 million 

of these funds has also been fully recovered; is that correct? 

Ms. Lewis. Yes, sir, the Justice Department recovery related to investigative work. 

Mr. Roemer. Okay. So we are down to 160. Of the 160 million, of the 450 million, how 

much of that can be, might be, will be fully recovered? 
33

Ms. Lewis. The other category that comprised the $450 million figure of improper 

payments, which were figures that came out of our semiannual reports for a three fiscal year 

period related to sustained question cost in the audit arena. And that was approximately $100 

million for a three-year period. Three million of the Education Department has reported 

recoveries. The department, in the letter you cite to, also indicates there were promissory 

notes relating to another portion of that. And some of the money may not be recoverable for 

other reasons. And Mr. Hansen might be able to expand on that. 

Mr. Hansen. Mr. Roemer, if I might. 

Mr. Roemer. Please. 

Mr. Hansen. The secretary, in the letter, we went off that very aggressively when we found 

out what had transpired. And as you indicated, the 250 has been identified and we have 

brought in $40 million in recoveries of the first 100 million that you talked about in terms of 

legal judgments. We are working with the Justice Department to get the other 60 million 

back as well as part of that, so we hope that we will recover most of those funds. The last 

100 million category on the financial audits, as the Inspector General suggested, we have 

collected 3 million. We also have 53 million identified in promissory notes, which leaves 

about 44 million un-recovered. That $44 million basically was a result of misuse by 

contractors, some of the grant recipients that have gone bankrupt, and I am not very 

optimistic that we are going to get that $44 million back. But our overall goal would be that, 

when all is said and done, that we have recovered over 400 of the $450 million through all 

the different measures that we have in our hands from an administrative standpoint and from 

a legal standpoint. 

Mr. Roemer. And finally, just to make sure that we are following up, not only recovering 

this money, but also prosecuting the people responsible, for instance, in the electronic theft 

case, we are now up to 19 people that have been brought forward for indictments? 

Ms. Lewis. Yes, sir. The number of the $100 million is from our investigative work, which 

includes civil judgments, civil liabilities and restitution. So the 100 million represents the 

judgments coming out of the legal system already. I do appreciate there has been discussion 

about this, and I very much appreciate the opportunity to clarify in any way I can. The $250 

million came from our duplicate payment work, and at the time we did report that all of the 

money had been accounted for. 

 The $100 million investigative work represents monies that were judged or agreed to 

by the responsible persons who had already been brought through the criminal system or the 

civil fraud system. They agreed to pay that money back. And as we testified, $40 million 

has indeed already been recovered by the Justice Department. 

 The final category of the $100 million, again, this is over a three year fiscal period, 

1998 to 2000, relates to the audits. It is a wide range of audits that include program audits 

and are financial audits. That is $100 million. And as the secretary's letter indicates, there 

are $3 million already in recoveries and promissory notes relating to another chunk of that. 

Mr. Roemer. All right. I thank you very much, and I thank the chairman. I think the 

chairman has said this very eloquently many times. But one of the reasons we have done 

these hearings is to try to make sure that there are sufficient internal controls, so that when 

human nature and bad human nature takes over, and we see this kind of fraudulent behavior 
34

take place, that we have sufficient internal controls to catch it, to recover the resources and 

prosecute the people responsible. 

We are hopeful, Ms. Lewis, that we will continue to improve the internal controls at 

the Department of Education so we prevent this from occurring in the first place and, 

secondly, catch it when it does happen and have the confidence and the controls and the 

accountability within the department so that we make sure that people are put in jail when 

they do abuse the situation. And I think you are going through these different cases, and 

when you can talk about them in some future hearing and talk about the level of recovery and 

indictments and prosecutions, I think this would be helpful to this committee as well. 

Ms. Lewis. I appreciate the opportunity and would also look to underscore that in the 

investigative number, that is part of this improper payments calculation. I want to make very 

clear the great bulk of that number relates to persons who have perpetrated fraud against the 

Department of Education. That number includes, for example, the telecommunications case. 

Mr. Roemer. Meaning that somebody outside the department is falsifying documents rather 

than employees? 

Ms. Lewis. That is right. I want to make sure I emphasize that. In that number also is the 

amount of recovery that the department has made with the great cooperation of the U.S. 

Attorney's Office for the impact aid monies that was diverted away from the two South 

Dakota school districts. That approximately $2 million is included in that $100 million 

figure. That money has been recovered, but it is an example as well that there are individuals 

alleged to perpetrate fraud, and much of the great amount of that number does relate to third 

parties perpetrating fraud against the Department. 

Mr. Roemer. Thank you. 

Mr. Hansen. Mr. Chairman, if I could just add to that though, and that is a very important 

component to remember, that a lot of these folks are people outside of the department but it 

also goes back to the fundamental issue we talked about before, too, that the reason 

sometimes these third party entities can perpetrate fraud and these other illicit activities is 

frankly because of the design of the program and the design in which the funding streams go 

out.

 So we really do need to fix it at the ground floor level, which may require some 

statutory changes or some regulatory changes as well. So it is both a problem on the 

contractor end, but I think we can fix some of these problems on the front end with the way 

the monies go out the door and whom they go to. 

Chairman Hoekstra. As my colleague from Indiana said, we will be more than willing to 

work with you on the statutory changes that need to be made to make it more painful for third 

party entities to perpetrate fraud against the department. But I may be a little bit mistaken 

here. I mean, a number of the impact aid, those were employees, is that not correct in South 

Dakota? 

Ms. Lewis. What we can speak to is what is in the complaint, and the complaint speaks to 

persons outside the department who purchased the automobiles and had their names on the 

bank accounts, as the complaint seeking recovery of the funds indicates. 
35

Chairman Hoekstra. Okay. And the telecommunications was inside and outside folks? 

Ms. Lewis. That involved eight employees of the department, as well as 11 persons, two 

contractor employees, and the other individuals who are basically friends and family 

members relating to the key individual person. 

Chairman Hoekstra. Right. And then you have got this other one here today, about the 

employee with the 8,000 phone calls on their cell phone? 

Ms. Lewis. That is actually an individual. 

Chairman Hoekstra. I think I have gone where Mr. Schaffer wants to, and I will yield to 

Mr. Schaffer. All right. We will go to Mr. Norwood. 

Mr. Norwood. Thank you, Mr. Chairman. I want to agree with Mr. Roemer. Yeah, he is 

still there. Good. But I would like to restate it in my own way as to what I think he said. I 

am certain that the taxpayers of this country are delighted that the Department of Education 

and the IG and the GAO are working hard to get some of the $450 million returned. That is 

very important. That is a very important part of your job. But I think it is also important to 

state, we need to be sure we are working very hard on trying to understand how $450 million 

got misplaced to start with. And secondly, why did it take the work of the IG and the GAO 

and this subcommittee to bring this to a head? Why did we ever have to get involved in a 

system where that much money got misplaced, I guess, and stolen in some cases, and are we 

working just as hard to make sure that never happens again? 

Ms. Lewis, I just have two questions, and I know we are limited in time and perhaps you can 

expand for the record at some point. But I am sort of interested in these false overtime 

charges that you alluded to earlier, and I would like to ask you two parts to that. One, how 

extensive is that, and two, have we made recommendations to the department to stop that in 

the future? 

Ms. Lewis. Yes, sir, if you would give me one second. We did a walk-through in the 

telecommunications case that you speak to, which involved contractor employees being in a 

position to bill the department for hours not worked, in some cases overtime, in other cases 

during what would be a normal day, but the individuals we were able to show weren't on the 

job. We took the payment system that was in place at the time and went back to the 

department and showed them in a very detailed way what went wrong and how no one was 

reviewing it. The person who was able to order the goods that were then provided to family 

members and friends and kept by her, was also the same person who approved the hours 

billed. This issue of segregating duties and providing for appropriate supervisory review 

these are just basic internal control measures need to be addressed and fixed. And the 

department has taken our information and indicated to us that, and represented to us that the 

situation that existed in this that scenario should not be repeated because of changes made in 

that office involved. 

 We also didn't just limit our briefing to the individual office involved. We briefed in 

a high level of the senior officials. We briefed the other managers and showed them what 

went wrong and indicated that they had to look within their own organizations and any of 

their own procurements or purchase authorities to ensure that the same internal control 

deficiencies didn't exist there. 
36

Mr. Norwood. Well, how hard is that? 

Ms. Lewis. That is a basic internal control measure. 

Mr. Norwood. Okay. Right. That is my point. Mr. Schaffer spoke to this earlier, and that 

has to do with leadership. It isn't brain surgery to figure that out. But somebody has got to 

insist all the way through the department that you will put in things like that. 

 Real quick, Ms. Calbom, because I am vitally interested in this too. And we have 

talked about this before, the potential fraudulent student admission documents that support 

the schools eligibility to participate in Pell grants. 

You indicated that you had the goods on one school about that. They, frankly, were 

fraudulent and were stealing. You also indicated that you were looking at a number of other 

schools possibly. 

 Same question to you. How big might this be, and what are you recommending to 

the department so we may be assured that this type of thievery can't occur again? 

Ms. Calbom. This could be one where it is the tip of the iceberg. There are quite a few 

questionable types of disbursement patterns that we are looking at right now. I can't make a 

guess for how big it is going to be. I can tell you that back in 1993, our Office of Special 

Investigations identified actually 23 schools that were engaging in similar activities as we 

have seen here, and that turned out to be about $300 million. But whether we are going to be 

getting into that situation or not, I don't know yet. 

Mr. Norwood. Is this a program that lends itself to a situation where no system can correct it 

or catch it? 

Ms. Calbom. Well, the difficulty with this and the problems we found is when you have got 

the school actually engaging in fraudulent activities, that means you have to take a lot more 

time and effort in trying to catch that type of fraud, and, you need to figure out a system 

where you can again try to look at what are unusual disbursement patterns first, and that is 

easy to do. You can do that with edit checks. The hard part is then analyzing those and then 

picking out where do I need to go to actually, say, interview students. That is the only way to 

get at it and that is very time consuming. So that is the difficulty in it. 

Mr. Norwood. I am sort of asking you this Secretary Hansen. I am simply saying maybe 

there are some programs that simply can't be checked on, and that is the case and we have 

some history of thievery going on. Maybe we need to not change our system but redesign the 

program so that it is impossible for them to do, if that is possible; and if it is not, we need to 

ask ourselves might we eliminate this because we can't stop thievery? I am just sort of asking 

you to think about it as we are thinking about it. That is all. 

Mr. Hansen. It is a very good point, Mr. Norwood, and there are again some statutory and 

regulatory issues we can look at from a program participation enforcement side of things. 

But one of the things we are also looking toward is to make sure that the data systems that we 

have in place will allow us as a management tool to catch these types of activities as quickly 

as possible. 
37

Congress authorized last year the use of the HHS new hires' database to help us use 

that and to track down defaulted borrowers, and that has already reaped in over $65 million 

for us in the last couple of months. 

 We are also looking to work with the IRS on the federal student aid application form 

has a lot of data elements that are pulled right from your tax form, and we are working with 

the IRS and the Treasury Department to see if there can be some better data-matching 

elements there to make sure that the people who are getting the money are using the right 

data, so that we can monitor and track it. 

 The national student loan data system as well, we are working to improve that system 

for tracking purposes to make sure two people aren't getting two PEL grants or two students 

loans and duplicate payments on an individual basis; so there are some tools that we are 

working towards to use about there may be some fundamental issues that may require some 

statutory or regulatory revision to make sure that some of this is cut off at the spout before it 

can even start. 

Mr. Norwood. Mr. Chairman, I know this subcommittee does have a lot of work and there 

are many other areas of interest too, and other members refer to that from time to time. I 

believe our interest in this subject is very helpful to the Inspector General and GAO, and 

indeed the Department of Education, and I would encourage you through the next 14 months 

that we come back as a subcommittee and check on this on a quarterly basis so that 

everybody knows we haven't lost interest. That doesn't mean we aren't interested in other 

things, but I think we need to stay on top of this and I urge you to consider that. Thank you, 

sir.

Chairman Hoekstra. I thank my colleague for those comments and we have had a number 

of discussions with the secretary, Mr. Hansen, GAO and the IG over the last few months as 

we moved into a new administration, and I think the commitment is there to build a 

relationship and to build a dialogue and to work collectively on the process. 

 Our colleague from Indiana, Mr. Roemer, we have done this in a bipartisan way for 

three years, and we are going to keep going and working with the department. If there are 

things that you need, whether it is statutory changes or whether it is additional resources or 

whatever, we are prepared to have that dialogue with the department. We will continue that 

dialogue over the next 12 to 14 months until we all have a high degree of confidence that we 

have addressed the issues. 

 That doesn't mean that is the only thing we are going to do. There are a number of 

other things that we are going to work on as well. Mr. Schaffer. 

Mr. Schaffer. Thank you, Mr. Chairman. Picking up on that, I want to assure the panelists 

and the department that our interest is high, and I don't think anybody on this committee 

plans on going away or reducing our concern at all for the question of waste, fraud, and abuse 

at the Department of Education. And I hope everyone appreciates this new spirit of 

bipartisanship, because the intensity of our impatience is not in any way diminished by the 

replacement of a Democrat administration with a Republican administration. 

 The fact is most people at the Department of Education have been there through both 

administrations, and these issues are very, very serious, and we are talking about spending 

other people's money on worthwhile national goals. When that is not accomplished and not 
38

done properly, it results in these kinds of audits and reports that undermine the confidence of 

the American people when it comes to spending on a priority, which I believe to be clearly 

the highest in the country. 

 So I just want to assure you we are nonpartisan when it comes to our frustration with 

financial management of the Department of Education. One employee gave his family 

members a cell phone, a department-issued cell phone, and the family made over 8,000 

personal phone calls between May of 1998 and December of 1999. That was found on page 

six of Ms. Lewis' testimony. And if you flip there, there is a typo, I think, which I need 

clarified, because it is at the center of my question; which it says, he pled guilty to one count 

of criminal information. What does that mean, or is that the wrong word? 

Ms. Lewis. It is not an indictment. It is something in the criminal context, and information 

is a public document filed with the court. 

Mr. Schaffer. So that really does mean something? 

Ms. Lewis. Yes. It would be the count that could be proved should the matter go to a trial, 

and ultimately there is an agreement. 

Mr. Schaffer. Here is my question. He or she resigned in May of this year, and these calls 

were made between May of 1998 and December of 1999. I am curious as to why it takes so 

long to come to some personnel resolution on 8,000 personal telephone calls. These are by 

family members, or at least the way it appears. 

Ms. Lewis. The individual at some point during the process was put on suspension without 

pay, so the salary no longer flowed. I can get back to you on the exact date. 

Mr. Schaffer. It is not just the one individual case I am so much interested in. It is the 

length of time it seems to take to enforce policies if they do exist. I would assume most 

employees in the Department of Education understand or can read somewhere in a policy 

manual that you don't give your department-issued cell phone to family members to rack up 

8,000 phone calls. 

Ms. Lewis. Yes, sir. We came upon this matter, this concern, and followed up on it on this 

individual employee, and then worked with the U.S. Attorney's office through the sometimeslengthy criminal process and also with the department in terms of what appropriate personnel 

action could be taken right away. 

Mr. Schaffer. Further up in your testimony it says, as a result of the ineffective controls, 

risk of errors, theft, fraud, and abuse as a result of these controls, theft, fraud, and abuse was 

increased. And the department concurred with the findings. Do we have effective controls 

today with respect to department-issued cell phones? 

Ms. Lewis. That is a good question. As a result of the one individual case, which was done 

in my office with my investigative staff, we turned to our audit staff and asked for a more 

comprehensive look, using the audit approach to look at the internal controls in the 

department over cell phones. And we did find serious deficiencies in terms of inventories 

related to cell phones, lack of policies and procedures. 
39

Mr. Schaffer. I can see that in here. Are they in place today is my question? 

Ms. Lewis. They are still being worked on. There is a draft of procedures document. 

Mr. Schaffer. So they are not in place today? 

Ms. Lewis. The policies and procedures document that was in place before is still in place, 

but we recommended that it be updated. So that is what is in draft-- 

Mr. Schaffer. Mr. Hansen, your answer to Mr. Tiberi is one I want to revisit with respect to 

the split purchases. And he asked, is the execution of a split purchase a dismissible offense? 

And your answer was it depends on the severity and the nature of it. 

 And, one, I want to give you a chance to address that again, but I want to preface it by 

saying I would like to hear the answer as yes. In fact, I think this is a serious enough issue 

that any department employee who happens to be watching the proceedings today and has 

heard your answer and with all due respect, I know we are throwing a lot of new questions at 

you and you might not have had a chance to consider them but heard the answer, and then 

maybe a week or a month from now is faced with a deadline on the card and has to make a 

decision on whether it is an appropriate time to make a split purchase or not. And the idea 

that "it depends" really leads to the problem that we are confronted with now. 

 At some point what I would like to see it just seems to me to be in the order of good 

management that if there is a question that an employee in the department has who has the 

authorization to use these cards, confronts this question that they have somebody to go to for 

clarity, that eventually comes to you or maybe the secretary himself because I want to know 

who to scream at when this happens again, and the last thing I want to know is that these 

rules are not hard and fast, that these guidelines are somehow ambiguous. 

 And I think in terms of fairness in promoting morale and getting a clear set of 

instructions and directions to department employees on when to use these cards and in which 

manner, these rules need to be in place. They need to be well understood and cannot be 

confusing. And if it comes to that point, I want the person who makes the decision to come 

here. And we usually invite you guys here, not somebody else. So I would like you to 

address that issue once more, because I do believe--let me digress again for a minute. 

 We have got all your best and brightest people sitting here behind you that are part of 

the SWAT team that is trying to figure out how to ferret out the waste, fraud, and abuse in the 

department. And for the years that this committee has undertaken this investigation and 

oversight capacity, we have had to drag information out of the department, and the 

department had tried to sweep all these issues under the rug, where we had to physically walk 

down the street in an unannounced visit and go office to office to find out the people we need 

to find in order to get the answers that this committee was interested in. 

 This new administration has expressed a new, fresh approach that these issues are 

going to be out and open. They want to work cooperatively with the Congress and with the 

best and brightest people in the department to elevate the confidence of the American people 

in the department and in this operation. That is a good goal, a great opportunity for 

everybody to be engaged in. And it seems like right now is the perfect time to take some of 

these recommendations and start putting them in writing and come up with hard and fast 

rules on when a split purchase is permissible, and reinforced with the notion that if there is a 
40

violation of these policies, you will be fired or demoted or find a new line of work, and this 

will be treated seriously in all cases, not just in some. 

Mr. Hansen. I would like to respond to that. I think in responding to Mr. Tiberi, I was 

talking about the people that are currently being reviewed for past practices. And my 

response was, I don't know what each of these individuals did, what the circumstances were. 

There are several hundred instances that I have got to look into, and I didn't want to make a 

blanket statement on those past practices. 

 I want to make it very clear right here, right now, that we will be putting in new 

standards in the future and there will be a zero tolerance for it. 

 I hope I didn't leave a misimpression about the seriousness of this and that there be 

will be consequences and severe consequences even if there is one split purchase, if the 

standard is none and if they use it for two purchases, that is one too many, and we will take 

that very aggressively. 

 So I hope that the context of my previous comments to Mr. Tiberi were viewed in 

light of the people that have had these previous activities going on where the standards 

weren't as clear, where the direction from their supervisors weren't as clear. I think it is 

difficult to hold some of those previous folks that have made those mistakes when there 

weren't standards in place, when there weren't accountability mechanisms in place. That is 

what I was going after. 

 From here on out, there will be very clear standards and people will be held up to the 

highest standards, and there will be severe consequences for those that don't. 

Mr. Schaffer. I appreciate you elaborating on that further, and that kind of answer is exactly 

the answer I think this committee wants to hear. Thank you. 

Chairman Hoekstra. Thank you, Mr. Schaffer. I don't believe you have any questions, Mr. 

Platts, or comments. 

Mr. Platts. No questions, Mr. Chairman, if I can just I guess a quick word. 

Chairman Hoekstra. Sure. 

Mr. Platts. I appreciate the efforts of the department and the challenge you have been 

assigned. And I think by the comments of both Secretary Hansen, yourself, and Secretary 

Paige in the Washington Post article, that you recognize the level of the challenge but also 

the extreme importance of it. And Secretary Paige referenced in his comments the 

importance of restoring the public's trust in the department and how the money is being spent. 

 And I guess I would kind of just reemphasize that ultimately that money and how it is 

being spent, that it is being taken away from the children our Nation, in education they are 

provided, and that we spend money wisely and ultimately spend it on the intended goal of 

ensuring the quality of education for all of our students. 
41

So I appreciate the efforts, and as the chairman has stated, he is optimistic that 

progress has been made in the new administration, new leadership, and I look forward to that 

continuing.

 So, thank you, Mr. Chairman. 

Chairman Hoekstra. Thank you. Thank you to the witnesses for being here today. Thank 

you for, Ms. Calbom, Ms. Lewis, all the hard work that you have helped us achieve; get 

completed in the last years. 

Mr. Hansen, we look forward to working with you over the coming years to get this 

issue behind us. There are a lot of other important issues that are on the plate at the 

Department of Education. We want to get this issue behind us so that we can be fully 

engaged on improving education. We appreciate your commitment, the clear indications 

from Secretary Paige that this is a top priority both, in words and the actions that he has taken 

in the six months that he has been there. We are looking forward to your having a full 

complement, a full staff on board at the Department of Education to aggressively pursue this 

issue.

 I appreciate the openness that the administration has shown in working with us, 

answering our questions, responding to our inquiries. That, of course, goes for the two of 

you as well, but we have got a longer record on that. But you have been very responsive in 

working with us and we look forward to continuing that process. 

 Again, as you make progress, we would appreciate it, in a bipartisan way, to notify us 

of the progress that you are making. If you have some setbacks, please let us know. And if 

you need any help, please let us know. We are committed to work with you through this 

process. We prefer not to have any surprises. We do believe we recognize the separation of 

powers, but we want to be partners with you in addressing these issues. 

 And I don't know if Mr. Roemer has any closing comments. 

Mr. Roemer. I would just echo once again the chairman's comments about approaching this 

in a bipartisan way. I don't much care if it is the Clinton administration or the Bush 

administration. I do care what my constituents say about accountability and overseeing the 

tax dollars and how the Department of Education, the Department of Defense, the 

Department of Commerce and other departments spend them across the city. And whether 

you inherited this problem, whether you created it that is the system of checks and balances 

in our election system. 

Secretary Paige said in his testimony there will be no excuses. Next time you are up 

here, I think that that is the standard. It is your problem now. It is our problem now. It is 

our jurisdictional problem as a committee. And, as Mr. Hoekstra has said, we think that this 

is something that is absolutely important for us to deal with, and we will deal with it as long 

as we have to. But we also want to divide our time up on some of the other more critical 

issues, in addition to how taxpayer dollars are spent; how do you catch this stuff, how do you 

prosecute it, how do you prevent it in the future, and how do you improve public education 

across the board? We want to spend time on that as well. 
42

You have got two great resources there, Inspector General Lewis in the General 

Accounting Office and Ms. Calbom. I hope you utilize those two people and pick their 

brains and find ways to make sure that we continue to run a Department of Education that 

this whole country can be proud of. 

 And I thank the chairman for holding this hearing, and I enjoy working with him on a 

host of different issues before the committee and I look forward to working with him on this, 

on AmeriCorps, on testing, on charter schools and many other issues. 

Chairman Hoekstra. Thank you. There is no further business. The subcommittee stands 

adjourned.

 [Whereupon, at 11:53 a.m., the subcommittee was adjourned.] 
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TABLE OF INDEXES 

Chairman Hoekstra, 1, 4, 6, 7, 11, 13, 14, 15, 16, 17, 19, 21, 22, 24, 25, 27, 28, 30, 31, 

34, 35, 37, 40, 41, 42 

Mr. Hansen, 6, 7, 15, 17, 18, 19, 20, 21, 23, 24, 26, 27, 28, 29, 30, 32, 33, 34, 36, 40, 41 

Mr. Norwood, 28, 29, 30, 35, 36, 37 

Mr. Platts, 40 

Mr. Roemer, 1, 4, 5, 17, 18, 19, 31, 32, 33, 34, 41 

Mr. Schaffer, 22, 23, 24, 37, 38, 39, 40 

Mr. Tiberi, 19, 20, 21, 30, 31 

Ms. Calbom, 7, 13, 15, 16, 22, 23, 25, 29, 31, 36 

Ms. Davis, 21, 22 

Ms. Lewis, 11, 17, 18, 20, 21, 28, 29, 31, 32, 33, 34, 35, 36, 38, 39 

Ms. Sanchez, 26, 27