United States General Accounting Office

GAO Report to the Ranking Minority Member,

Permanent Subcommittee on

Investigations, Committee on

Governmental Affairs, U.S. Senate

July 1996 DEPARTMENT OF

EDUCATION

Status of Actions to

Improve the

Management of

Student Financial Aid

G O A

years

1921 - 1996

GAO/HEHS-96-143

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-271028 

July 12, 1996

The Honorable Sam Nunn

Ranking Minority Member

Permanent Subcommittee on Investigations

Committee on Governmental Affairs

United States Senate

Dear Senator Nunn:

Each year, through the Department of Education’s student financial aid

programs, students have access to billions of dollars in loans and grants

for postsecondary education. As reported by the Department, total student

financial aid under title IV of the Higher Education Act of 1965 (HEA), as

amended, for students during academic year 1994-95 was $32.7 billion. The

largest source of this aid (70 percent) was the Federal Family Education

Loan Program (FFELP),1

 which provided 6.2 million loans totaling almost

$23 billion. The second largest source was the Federal Pell Grant Program,

which provided 3.7 million grants totaling $5.6 billion.

Concerns have been expressed over the years about fraud and abuse in

these student aid programs, especially FFELP and the Pell Grant Program.

Concerns have also been expressed about the inadequacy of the

Department’s procedures for gatekeeping—determining which schools

can participate in these programs—and program review.

In response to these concerns, in 1990 the Senate’s Permanent

Subcommittee on Investigations (PSI) held hearings and, in 1991, issued a

report, which included 29 recommendations to the Department.2

 In 1993

and 1995, PSI held related hearings concerning proprietary schools’

(for-profit trade schools) alleged fraud and abuse under the Pell Grant

Program. Between April 1991 and July 1995, the Department’s Office of the

Inspector General (OIG) also issued reports on topics such as the large

number of FFELP defaults and discrepancies in schools’ reporting on their

use of Pell grant funds. In these reports, OIG made 135 recommendations to

the Department. During the same period, we reported on problems with

the Department’s administration of student financial aid programs and

made 41 recommendations.

1

FFELP was formerly called the Guaranteed and Stafford Student Loan Programs.

2

Abuses in Federal Student Aid Programs, U.S. Senate, PSI, Committee on Governmental Affairs, S.

Report 102-58 (Washington, D.C.: 1991).

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B-271028 

In total, PSI, OIG, and we made 205 recommendations to the Department. In

this report, we are responding to your request to determine (1) the status

of the Department’s actions in response to these recommendations,

including whether the Department’s actions address the

recommendations, and (2) the reasons the Department gave for not acting

on some recommendations.

To respond to your request, we examined relevant Department records

and interviewed PSI and OIG staff and responsible Department officials. For

each PSI and OIG recommendation, we asked the PSI or OIG staff who did the

investigative or audit work for the status of the corrective action,

including whether the action addresses the recommendation.3

 To

determine the status of our recommendations, we reviewed Department

records and talked to responsible Department officials. We also obtained

the reasons for the Department’s inaction on recommendations from

responsible Department officials and our review of Department records.

We reviewed the Department’s actions through April 1996 and conducted

our review from October 1995 to June 1996 in accordance with generally

accepted government auditing standards. See appendix I for details on our

scope and methodology.

Results in Brief The Department has completed actions or has actions in progress or

planned for 186 (91 percent) of the 205 recommendations made to improve

its management of federal student financial aid. Most of these actions have

the potential to remedy problems underlying the recommendations. For

example, in addressing recommendations to improve the accuracy and

completeness of student aid data, the Department began working more

closely with guaranty agencies4

 to (1) understand and resolve some of the

data errors and (2) implement better edit checks in its newly developed

National Student Loan Data System (NSLDS).

The availability of more accurate data should help ensure that the

Department has the most current data for monitoring students’ loan

indebtedness, guaranteeing compliance with federal requirements, and

managing student financial aid.

3

The phrase “action addresses the recommendation” means that the action has the potential to remedy

the reported problem. Neither PSI, OIG, nor we determined whether the action actually solved the

problem.

4

Guaranty agencies are agencies that serve as intermediaries between the Department and lenders,

insure the loans made by lenders to students, and ensure that lenders and schools meet FFELP

requirements.

Page 2 GAO/HEHS-96-143 Status of Actions
B-271028 

Some of the Department’s actions, for about 10 percent of the 186

recommendations, however, generally will not remedy the problems,

according to staff of the entity that made the recommendations. For

example, PSI recommended that the Department revise limits on the

amount of federal student aid available for students attending proprietary

schools. PSI found that proprietary schools often receive federal funds for

inflated and exorbitant tuition, when the same, or better, education and

training was available elsewhere at much lower cost. Although the

Department has not implemented this recommendation, it plans to

consider it when developing its legislative proposal for reauthorizing HEA

in 1997.

For the remaining 19 (9 percent) of the 205 recommendations, the

Department took no actions. According to Department officials, the

principal reason the Department did not act was that it disagreed with the

recommendations. Other reasons, given by Department officials, include

the Department’s belief that (1) previous actions addressed the

recommendations and (2) it did not have the authority to implement the

recommendations. For two recommendations, the Department provided

no reason.

The following illustrates an instance in which the Department disagreed

with a recommendation. OIG recommended that the Department collect

and compile schools’ performance data, such as job placement rates, from

accrediting agencies.5

 The Department could use this information to help

determine the overall success of title IV-funded job training. The

Department disagreed, (1) saying this would impose a considerable

burden on accrediting agencies and (2) citing limitations on the

methodology for calculating these measures.

Background The Department administers programs for student financial aid under title

IV of HEA. In prior years, PSI, OIG, and we found that the Department had

historically mismanaged and poorly overseen these programs. In reports,

PSI, OIG, and we identified many problems that varied in their significance.

Many of these reports highlighted areas where the Department was not

properly managing and administering its student aid programs. These

problems were attributed to inadequate planning, inaccurate loan data,

and weak internal controls.

5

Managing for Results: Review of Performance-Based Systems at Selected Accrediting Agencies,

Department of Education, ACN-06-30004 (Washington, D.C.: May 8, 1995).

Page 3 GAO/HEHS-96-143 Status of Actions
B-271028 

We also identified FFELP as 1 of 17 federal programs that we considered to

be “high risk” because it was especially vulnerable to waste, fraud, abuse,

and mismanagement. Given the number of defaulted student loans, we

concluded that the Department did not fully succeed in protecting the

financial interest of the federal government and U.S. taxpayers.6

 In our

1995 high-risk series, we expanded the “high-risk” designation to include

all student financial aid programs under title IV of HEA.

7

Department Actions

Generally Addressed

Most

Recommendations

In general, the Department has advanced significantly in initiating actions

(completed, in progress, or planned) that addressed recommendations

(see table 1).

Table 1: Status of Actions on 205

Recommendations Made to the

Department, April 1991-July 1995 

(as of April 1996) 

Status of actions

Source Completed In progress Planned None taken Total

PSI 14 7 3 5 29

OIG 85 31 7 12 135

GAO 22 15 2 2 41

Total 121 53 12 19 205

See appendix II for a list of PSI recommendations, appendix III for a list of

OIG recommendations, and appendix IV for our recommendations. The

status of the action appears for each recommendation.

The Department’s actions have addressed most of the recommendations.

According to the sources that made the recommendations—PSI, OIG, and

us—of the 186 for which the Department has initiated actions, the actions

have generally addressed 159 recommendations but have not addressed

19; for the remaining 8, PSI could not determine whether the actions

addressed its recommendations because of the recency of the actions (see

table 2).

6

High-Risk Series: Guaranteed Student Loans (GAO/HR-93-2, Dec. 1992).

7

High-Risk Series: Student Financial Aid (GAO/HR-95-10, Feb. 1995).

Page 4 GAO/HEHS-96-143 Status of Actions
B-271028 

Table 2: Department Actions

Addressed 186 of 205

Recommendations

Actions

Source

Generally

address

Generally do

not address

Could not

determine Total

PSI 14 2 8 24

OIG 112 11 0 123

GAO 33 6 0 39

Total 159 19 8 186

Some Corrective Actions

Resulted in Major

Improvements

Some of the 159 actions that addressed recommendations have resulted in

major changes, such as (1) strengthening gatekeeping procedures—for

example, improving the eligibility and certification process—to ensure

that the Department does not allow unscrupulous schools to participate in

student aid programs; (2) implementing initiatives for better financial

management, such as issuing an audit guide requiring lenders participating

in FFELP to have an annual compliance audit by a nonfederal organization

to better ensure the financial integrity of FFELP; and (3) beginning to

implement NSLDS.

Although an assessment of whether changes resolved the problems

underlying the recommendations is beyond the scope of this report,

implementation of NSLDS illustrates actions that have yielded some

improvements. For example, to address recommendations concerning

NSLDS data, the Department has formed the NSLDS Data Integrity Insurance

Group (DIIG). DIIG is charged with (1) identifying data anomalies,

inconsistencies, and inaccuracies in NSLDS; (2) correcting and preventing

data problems; and (3) working toward ensuring the accuracy,

completeness, and timeliness of NSLDS data. As of October 1995, DIIG

identified (1) several data inaccuracies that resulted in additional edits

being added to NSLDS and (2) many omissions and inaccuracies in data

supplied by schools to the Department’s systems. Eliminating these data

problems is a top DIIG priority.

The Department also formed an NSLDS project team tasked with reviewing

alleged defaulters receiving subsequent loans. As of May 1996, for award

year 1995-96, the project team, using data from NSLDS and the Department’s

student aid application system, identified 100,376 student aid applicants

who should not have received federal student loans. The system showed

that these applicants had previously defaulted on a loan.8

 If they did

8

Federal law and regulations state that students who have defaulted on a loan may not receive another

loan (unless they arrange to repay their defaulted loans).

Page 5 GAO/HEHS-96-143 Status of Actions
B-271028 

receive subsequent loans, these borrowers could have received over

$280 million in overpayments. This estimate is based on the Department’s

records, which show the average loan amount is about $2,800.

These checks and data analyses may screen out obvious errors and

inconsistencies; however, they do not ensure that the remaining data are

valid and accurate, which the usefulness of NSLDS data depends on. As a

result, we, as well as OIG, believe that the Department has not adequately

tested the accuracy and validity of loan data in NSLDS. The Department is

currently working with a contractor to identify and verify critical data

items in NSLDS.

Some Corrective Actions

Will Not Remedy Problems

According to PSI, OIG, and our staff, 19 corrective actions generally did not

address the recommendations, possibly allowing problems relating to

important matters to continue. For example, PSI recommended that the

Department revise limits on the amount of federal student aid available for

students attending proprietary schools. PSI found that proprietary schools

often received federal funds for overpriced tuition, when the same, or

better, education and training was available and less costly elsewhere. PSI

reported that in one case, a proprietary school student paid up to 38 times

the tuition that other postsecondary schools charged, such as a local

community college, for the same training. Although the Department has

not yet implemented this recommendation, it plans to consider it when

developing its legislative proposal for reauthorizing HEA in 1997.

In some instances, the Department’s actions did not address OIG

recommendations. For example, OIG determined that the Department has

not addressed an important recommendation on the lender review

process. In January 1994, as part of a review of guaranty agency and lender

oversight procedures, OIG concluded that the lender review process

needed many improvements. This included better targeting of agencies

and lenders for review, which should minimize the financial risk

associated with not selecting larger lenders for review.9

 Department

regulations require guaranty agencies to biennially review the 10 largest

lenders or those with loans equal to 2 percent of the agency’s portfolio.

The OIG recommended that the Department’s Guaranty Agency and Lender

Oversight Service (GLOS) ensure that guaranty agencies comply with this

requirement as an element of overall program fiscal and managerial

control.

9

Review of the Performance of the Guaranteed Student Loan Branches With Student Financial

Assistance Programs, Department of Education, ACN-04-20075 (Washington, D.C.: Jan. 28, 1994).

Page 6 GAO/HEHS-96-143 Status of Actions
B-271028 

The Department said it issued additional guidance to guaranty agencies for

meeting the requirement. The Department also stated that it allows them

to substitute another lender for any 1 of its largest 10 or 1 with 2 percent of

loans. These substitutions were granted in certain circumstances, such as

to include a lender with a significant change in its loan volume or default

rate. The Department did not indicate what actions GLOS would take to

ensure reviews of the largest 10, or top 2 percent of, lenders that are not

reviewed by guaranty agencies because of substitutions.

The Department Did

Not Act on Some

Recommendations

Because It Believed

No Action Was

Needed

The Department did not act on 19 of the 205 recommendations. The

reasons the Department gave for not acting appear in table 3. For 14 of the

19 recommendations, the Department believed no actions were needed

because it (1) disagreed with the recommendation or (2) believed a

previous action addressed the recommendation.

Table 3: Reasons the Department

Provided for Not Acting on

Recommendations

Reasons Number

Disagreed with the recommendation 9

Believed previous action addressed the recommendation 5

Believed it lacked authority to implement the recommendation 2

Did not know the recommendation existed 1

Provided no reason 2

Total 19

The following are examples of some significant recommendations for

which the Department took no actions:

• The Department said it disagreed with our recommendation that it study

the feasibility of requiring guaranty agencies to standardize their FFELP

loan accounting systems.10 We reported that although each guaranty

agency operates with the same basic program objectives and criteria, at

least 4 of 10 we judgmentally selected for review were independently

developing new loan information systems or upgrading their current

systems. Such independent development efforts may not be an efficient

10Financial Audit: Guaranteed Student Loan Program’s Internal Controls and Structure Need

Improvement (GAO/AIMD-93-20, Mar. 16, 1993).

Page 7 GAO/HEHS-96-143 Status of Actions
B-271028 

use of the Department’s funds and may impair its ability to effectively

oversee guaranty agency activity.

The Department, in disagreeing, said it believes that (1) requiring guaranty

agencies to use a standard loan accounting system would not be feasible

because some agencies are within state government units and must follow

state accounting procedures and (2) implementing the recommendation

would not be practical because of the large number of guaranty agencies.

It did say that if the number of guaranty agencies were to be reduced to a

more manageable level, it would pursue implementing standardized

accounting systems. We still believe that a standardized accounting system

would improve the Department’s ability to oversee guaranty agency

activity.

• The Department said it disagreed with an OIG recommendation that it

collect and compile schools’ performance data, such as job placement

rates, from accrediting agencies. This information could be used by the

Department to help determine the overall success of title IV-funded job

training. The Department disagreed, (1) saying this would impose a

considerable burden on accrediting agencies and (2) citing limitations on

the methodology for calculating these measures.

• The Department said it believed previous action addressed a PSI

recommendation that the Department better coordinate its gatekeeping

activities with other government agencies. PSI reported, for example, that

the Department had failed to systematically coordinate with the

Department of Veterans Affairs (VA), even though VA has its own student

aid program. Because the Department and VA inadequately coordinated

their compliance activities, each Department was generally unaware of the

other’s initiation of an adverse action taken against a school, which could

contribute to duplicative compliance activities as well as increased costs.

PSI recommended that the Department seek the assistance of VA and the

Department of Labor (Labor) in sharing mutually useful information, such

as having the agencies alert each other when an adverse action is taken.

The Department said that (1) in 1995, it had discussions with Labor on

coordination efforts in which it determined that the structure of each

Department’s respective programs was sufficiently different that

comparisons were not helpful; and (2) in the mid-1980s, it shared

information about adverse actions with VA; however, this effort was

discontinued in the late 1980s because it was not producing results. The

Institutional Participation and Oversight Service expects to contact VA by

December 1996 to determine whether it would be useful to reinstate a

Page 8 GAO/HEHS-96-143 Status of Actions
B-271028 

modified information exchange that might prove to be more beneficial. As

of April 1996, the Department had not developed initiatives to improve its

coordination with VA and Labor.

Agency Comments

and Our Evaluation

On June 24, 1996, the Department of Education provided us written

comments on a draft of our report. (See app. V.) The Department agreed

with our assessment of its actions to address 205 recommendations to

improve the management of student financial aid programs (SFAP) made by

PSI, OIG, and us. In its response, the Department identified improvements in

key measurements that it attributed to changes made in managing SFAP as

well as some specific accomplishments and ongoing initiatives it is taking

regarding gatekeeping.

Regarding the issues identified in the report in which the Department

disagreed with a recommendation, the Department believes that its

justifications are supportable and fairly represented. The Department also

said that it was impossible to make some of the recommended changes

without changes in legislation, and several legislative actions that might

address some of the open issues in the report are pending in the legislative

process. The Department expects to continue to address open

recommendations, as appropriate, during the next reauthorization of HEA.

The Department’s staff also provided a number of technical comments and

suggestions, which we incorporated as appropriate. In some of these

comments, the Department highlighted actions it took after our April 1996

cutoff date. Time did not permit us to update actions taken after

April 1996, in part, because PSI and OIG did not have an opportunity to

evaluate them.

Page 9 GAO/HEHS-96-143 Status of Actions
B-271028 

We are sending copies of this report to the Secretary of Education,

appropriate congressional committees, and other interested parties. We

also will make copies available to others on request.

If you have any questions about this report, please contact me or Joseph J.

Eglin, Jr., Assistant Director, at (202) 512-7014. This report was prepared

by Paula N. Denman, Evaluator-in-Charge. Other contributors are listed in

appendix VI.

Sincerely yours,

Carlotta C. Joyner

Director, Education and

 Employment Issues

Page 10 GAO/HEHS-96-143 Status of Actions
Page 11 GAO/HEHS-96-143 Status of Actions
Contents

Letter 1

Appendix I 

Scope and

Methodology

18

Appendix II 

Status of Actions on

PSI

Recommendations

19

Abuses in Federal Student Aid Programs, S. Report 102-58, 1991 19

Appendix III 

Status of Actions on

OIG

Recommendations

33

Report on the Transitional Guaranty Agency’s Role in Guaranty

Agency Transition Strategy, ACN 05-40007, June 2, 1995

33

Financial Statement Audit—U.S. Department of Education

Federal Family Education Loan Program for the Years Ended

September 30, 1994 and 1993, ACN 17-40302, May 31, 1995

34

Managing for Results: Review of Performance-Based Systems at

Selected Accrediting Agencies, ACN 06-30004, May 8, 1995

36

Financial Statement Audit of the U.S. Department of Education

Federal Direct Student Loan Program for the Year Ended Sept.

30, 1994, ACN 17-48320, March 17, 1995

38

Inconsistent Institutional Pell Grant Reporting Results in

Significant Expenditure Discrepancies, ACN 11-30001, September

26, 1994

41

Ineligible Non-U.S. Citizens Received $70 Million in Pell Grants,

ACN 11-40000, September 9, 1994

42

Why Use Pell Grants for Instruction in English as a Second

Language? Taxpayers Pay More and Students Get Less, ACN

09-40003, August 12, 1994

43

Review of Performance of the Guaranteed Student Loan

Branches Within Student Financial Assistance Programs, ACN

04-20075, January 27, 1994

44

Effectiveness of the Regional Institutional Review Branches

Monitoring of Institutions Participating in the Student Financial

Assistance Programs, ACN 05-20075, December 21, 1993

54

Page 12 GAO/HEHS-96-143 Status of Actions
Contents

The Secretary’s Default Reduction Initiative—An Alternative

Approach to Implementing Sanctions, MIR 93-07, September 14,

1993

66

ED Should Prohibit Conflicts of Interest Between Guaranty

Agencies and Affiliated Organizations, MIR 93-02, March 15, 1993

68

Title IV Funding for Vocational Training Should Consider Labor

Market Needs and Performance Standards, MIR 93-03, March 12,

1993

68

OPE’s Lender and Guarantee Agency Oversight Function Should

Focus More on Audit Follow-Up, ACN 11-20015, December 1,

1992

69

ED Needs to Change the Legislative Definition of Loans in

Repayment, MIR 92-13, September 4, 1992

72

Loan Servicers for the Guaranteed Student Loan Programs

(GSLP) Need to Be Better Controlled to Save ED Millions in

GSLP Losses, MIR 92-12, August 19, 1992

73

Improving Documentation Requirements for Determining

Eligibility for Student Financial Assistance Programs, MIR 92-11,

July 29, 1992

74

Stricter Standards Needed for the Granting of Forbearances, MIR

92-10, June 30, 1992

75

Effectiveness of the Office of Postsecondary Education’s Effort

to Collect Perkins Loan Excess Cash, MIR 92-08, April 1, 1992

76

About $300 Million in Guaranteed Student Loans and Pell Grants

Will Be Authorized for Students With Defaulted Loans for the 12

Months Ending June 30, 1992, MIR 92-07, March 19, 1992

77

Owners of Corporate Proprietary Schools Need to Be Held

Personally Liable for Title IV Program Losses, MIR 92-06, March

16, 1992

78

ED Needs to Strengthen Student Loan Cure Procedures, MIR

92-05, March 13, 1992

79

The Office of Student Financial Assistance Did Not Assure That

All Institutions Submitted Audit Reports or That It Recovered All

Misspent Funds, ACN 11-00010, February 6, 1992

81

ED Should Act to Reduce Interest and Special Allowance Costs

for Cancelled Student Loans, MIR 91-10, September 3, 1991

85

Improvements Needed to Strengthen Guarantee Agency School

Reviews, MIR 91-09, June 19, 1991

86

Page 13 GAO/HEHS-96-143 Status of Actions
Contents

Appendix IV 

Status of Actions on

GAO

Recommendations

88

Student Financial Aid: Data Not Fully Utilized to Identify

Inappropriately Awarded Loans and Grants (GAO/HEHS-95-89,

July 11, 1995)

88

Federal Family Education Loan Information System: Weak

Computer Controls Increase Risk of Unauthorized Access to

Sensitive Data (GAO/AIMD-95-117, June 12, 1995)

89

Financial Audit: Federal Family Education Loan Program’s

Financial Statements for Fiscal Years 1993 and 1992

(GAO/AIMD-94-131, June 30, 1994)

90

Student Loans: Millions Loaned Inappropriately to U.S. Nationals

at Foreign Medical Schools (GAO/HEHS-94-28, Jan. 21, 1994)

92

Financial Management: Education’s Student Loan Program

Controls Over Lenders Need Improvement (GAO/AIMD-93-33,

Sept. 9, 1993)

96

Department of Education: Long-Standing Management Problems

Hamper Reforms (GAO/HRD-93-47, May 28, 1993)

97

Financial Audit: Guaranteed Student Loan Program’s Internal

Controls and Structure Need Improvement (GAO/AIMD-93-20,

Mar. 16, 1993)

98

Department of Education: Management Commitment Needed to

Improve Information Resources Management

(GAO/IMTEC-92-17, Apr. 20, 1992)

103

Appendix V 

Comments From the

Department of

Education

104

Appendix VI 

Staff

Acknowledgments

107

Related GAO Products 108

Tables Table 1: Status of Actions on 205 Recommendations Made to the

Department, April 1991-July 1995 

4

Page 14 GAO/HEHS-96-143 Status of Actions
Contents

Table 2: Department Actions Addressed 186 of 205

Recommendations

5

Table 3: Reasons the Department Provided for Not Acting on

Recommendations

7

Abbreviations

ACD audit clearance document

AFMS Accounting and Financial Management Service

ARB Audit Resolution Branch

CED Compliance and Enforcement Division

DIIG Data Integrity Insurance Group

DLSS Direct Loan Servicing System

EDCAPS Education Central Automated Processing System

ESL English as a Second Language

FARS Financial Accounting and Reporting System

FASAB Federal Accounting Standards Advisory Board

FCC federal capital contribution

FDSLP Federal Direct Student Loan Program

FFEL Federal Family Education Loan

FFELP Federal Family Education Loan Program

FMS Financial Management Service

FOS Field Operations Service

FPRDL Final Program Review Determination Letter

FSMB Federation of State Medical Boards

GLOS Guaranty Agency and Lender Oversight Service

GLRB Guarantor and Lender Review Branch

GPAS General Performance Appraisal System

GSLB Guaranteed Student Loan Branch

HEA Higher Education Act

IDS Institutional Data System

IMD Institutional Monitoring Division

IPA Independent Public Accountant

IPOS Institutional Participation and Oversight Service

IRB Institutional Review Branch

IRM information resources management

LSARB Lender and State Agency Review Branch

NCFMEA National Committee on Foreign Medical Education and

Accreditation

NSLDS National Student Loan Data System

OGC Office of General Counsel

OIG Office of the Inspector General

OMB Office of Management and Budget

Page 15 GAO/HEHS-96-143 Status of Actions
Contents

OPE Office of Postsecondary Education

PAS primary accounting system

PDL Program Determination Letter

PEPS Postsecondary Education Participants System

PSI Permanent Subcommittee on Investigations

PSS Program Systems Service

ROD Regional Operations Division

SFAP Student Financial Aid Programs

SPRE State Postsecondary Review Entity

SSA Social Security Administration

TGA Transitional Guaranty Agency

VA Department of Veterans Affairs

Page 16 GAO/HEHS-96-143 Status of Actions
Page 17 GAO/HEHS-96-143 Status of Actions
Appendix I 

Scope and Methodology

To achieve our objectives, we reviewed Senate Permanent Subcommittee

on Investigations, Office of the Inspector General (Department of

Education), and our prior reports, testimonies, and studies to identify past

recommendations. We reviewed reports issued between April 1991 and

July 1995 that focused on issues relating to fraud, abuse, mismanagement,

and high-risk activities in the Department’s implementation of federal

student financial aid programs.

To determine the status of the Department’s actions in response to PSI, OIG,

and our recommendations, we (1) interviewed officials responsible for

carrying out and overseeing the implementation of the recommendations

and (2) reviewed the Department’s Corrective Action Plans and supporting

documentation and our documentation related to following up on our

recommendations.

To determine the extent to which the Department’s actions addressed the

recommendations, we interviewed PSI, OIG, and our staff who developed

the recommendations. For those instances where the Department did not

act on recommendations, we interviewed those responsible to determine

the reasons for inaction or obtained documentation of these reasons. We

reviewed records of actions taken through April 1996, to the extent they

were readily available, but did not validate information Department staff

provided us on corrective actions taken.

We excluded from our review certain narrowly focused or interim reviews

or analyses made by OIG. These include “Issues to Consider” papers and

student financial aid action memorandums. We did not include these

documents in our study because the Department does not formally track

actions to address them, and these products are not prepared in

accordance with generally accepted government auditing standards. We

were told that OIG no longer prepares Issues to Consider papers, and the

Department plans to begin tracking actions that address recommendations

made in student financial aid action memorandums.

Page 18 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

PSI issued one report, Abuses in Federal Student Aid Programs, in 1991,

with recommendations for improving the management of student financial

aid. The status of the Department of Education’s actions, through

April 1996, that we report on was determined by the Permanent

Subcommittee on Investigations (PSI) staff who did the audit work. We did

not assess the appropriateness of the determinations. The following

identifies the report and describes the report’s recommendations,

Department actions taken, and PSI’s conclusions about the actions’ status

and about whether the actions generally addressed the recommendations.

Abuses in Federal

Student Aid Programs,

S. Report 102-58, 1991

Recommendation: Develop minimum uniform quality assurance

standards with which all accrediting bodies that accredit proprietary

schools must comply, develop and carry out a meaningful review and

verification process designed to enforce compliance with these standards,

and terminate recognition if the Department determines that an agency

that accredits proprietary schools does not meet the standards.

Department action: The Department has not issued these standards

because the 1992 amendments to the Higher Education Act (HEA) gave

accrediting agencies the flexibility to set their own.

The Department, however, is required to assure itself that all agencies

have a systematic program of review to assess the validity and reliability of

their standards and be able to demonstrate that their standards are valid

indicators of quality. During departmental reviews of agencies seeking

accrediting authority, the Department assesses the adequacy of agencies’

compliance to their own standards.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require accrediting bodies to screen out substandard

schools, especially in the area of proprietary schools.

Department actions: Since 1992, the Department has (1) reduced the

number of years accrediting agencies are recognized, (2) fully reviewed 44

agencies for compliance with regulations, and (3) reviewed all agencies to

Page 19 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

ensure that they accredit schools that participate in student aid programs

administered by the federal government.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require accrediting agencies to improve their site

examination procedures by doing them at shorter intervals, providing for

unannounced visits, and increasing the training of team members.

Department action: The Department developed regulations mandating

that accrediting agencies perform (1) at least one on-site review of a

school or program participating in title IV programs when determining

accreditation, (2) at least one unannounced inspection of schools

providing vocational education and training between the time agencies

were accredited or preaccredited and the expiration of a school’s

accreditation or preaccreditation, and (3) a site visit within 6 months of

establishment of a branch campus or after a school’s ownership has

changed. Also, while regulations do not require levels of training length

and content, they do require competent and knowledgeable agency staff,

qualified by experience and training. PSI continues to be concerned that

agency staff do not have the experience and expertise for reviewing and

accrediting proprietary schools.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require accrediting agencies to share information

with one another on all adverse actions against schools and school

owners.

Department action: The Department issued regulations mandating that

accrediting agencies share with each other, state agencies, and the

Department information on all adverse actions against schools or

programs. In March 1996, the Department implemented a new process for

Page 20 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

following up on accrediting agency complaints about schools and

programs they accredit.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require accrediting agencies to publicly disclose

when schools are coming up for accreditation or reaccreditation.

Department action: The Department mandated that agencies (1) publish

the year when a school or program subject to its jurisdiction is being

considered for accreditation or preaccreditation and (2) provide an

opportunity for third-party comments on the school or program’s

qualifications.

Agencies define time frames in their policies for publishing when schools

or programs are being considered for accreditation. The Department is on

the agencies’ mailing list for this information. Also, agencies routinely

invite the Department to comment on schools up for review and on any

proposed changes to agency standards, policies, or procedures.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require accrediting agencies to develop and make

public uniform, performance-based consumer protection standards,

including, but not limited to, criteria on enrollments, withdrawal rates,

completion rates, placement rates, and default rates.

Department action: As a result of 1992 HEA, the Department requires

agencies to have standards that effectively address the quality of a school’s

or program’s success concerning student achievement in relation to

mission, including, as appropriate, consideration of course completion,

state licensing examination, job placement rates, and default rates. The

Department requires agencies to make this information publicly available

but not in a uniform manner.

Page 21 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Work with the Department of Labor and industry to

develop and make widely available accurate information on current and

future market needs for proprietary school trades and skills that are

subsidized by federal student aid programs.

Department action: The Department worked with Labor to develop a

legislative proposal that would prohibit students in nondegree programs

from receiving Pell grants. The Department believes that states, because

they are better at predicting local labor market conditions, would have

been permitted to use funds provided through block grants from Labor to

make skill grants available for nondegree training. The Congress did not

accept this proposal.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Revise limits on the amount of federal student aid for

proprietary schools to better reflect the cost of equivalent training

available through other legitimate sources of postsecondary education.

Department action: The Department is developing its legislative

proposals for reauthorizing HEA in 1997 and, at that time, will consider this

recommendation.

PSI’s conclusion about the recommendation’s status: Planned

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Assist the states by recommending uniform minimum

licensing requirements, covering areas such as (1) recruitment,

(2) advertising, (3) admissions, (4) separation of admissions from financial

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Appendix II 

Status of Actions on PSI Recommendations

aid, (5) site visits, (6) complaint procedures, (7) completion and placement

data, and (8) enforcement procedures. Refuse to recognize for

participation in the Federal Family Education Loan Program (FFELP)

schools operating in states that do not adopt minimum uniform licensing

standards.

Department action: The Department has not recommended minimum

licensing requirements to the states. It does not have the authority to

refuse to recognize schools operating in states that do not adopt

recommended minimum uniform licensing standards because it cannot

require establishment of these standards.

PSI’s conclusion about the recommendation’s status: None taken

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Appoint an assistant secretary for Student Financial

Assistance in the Office of Postsecondary Education (OPE), accountable

for all aspects of the student aid programs.

Department action: OPE was reorganized, making the Deputy Assistant

Secretary for Student Financial Assistance responsible for all student aid

functions including gatekeeping, monitoring, and compliance functions. In

1994 the Deputy Assistant Secretary split responsibility with the Assistant

Secretary for management of student financial aid. The Department plans

to reintegrate these responsibilities on or before October 1, 1996.

As a result of its June 1995 hearings, PSI continues to be concerned that the

Department’s approach to oversight is uneven and inconsistent.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Perform a complete overhaul of the certification and

eligibility award and program review process.

Page 23 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

Department action: As a result of the 1992 HEA, the Department is

required to recertify all schools participating in title IV programs by

July 1995. Also, in 1995 the Department began to re-engineer its oversight

office by better using its data to identify schools not complying with title

IV requirements. The new Institutional Participation and Oversight Service

Risk Analysis process, when implemented, is designed to coordinate and

apply data from the Department’s automated systems to sharpen the focus

on high-risk schools. Meanwhile, updated school selection factors for

program review planning will be available in the summer of 1996 for

distribution to regional offices.

Because the actions were recently taken, PSI could not determine if they

will address the recommendation.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Establish an office of oversight and enforcement to

oversee activities of all program participants.

Department action: All of the Department’s offices with monitoring and

gatekeeping responsibilities were consolidated in OPE in 1992. Also, a new

unit comprised of financial and program analysts was established in the

Guaranty Agency and Lender Oversight Service (GLOS); its goal is to

monitor guaranty agency and lender compliance with title IV program

requirements.

As a result of its June 1995 hearings, PSI continues to be concerned that the

Department’s approach to oversight is uneven and inconsistent.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Streamline and modernize informational systems,

improving communication and data exchange within the Department and

among the Department and program participants.

Page 24 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

Department action: The Department is implementing the National

Student Loan Data System (NSLDS). Phase I (of III), which included

prescreening for student financial aid eligibility and calculating default

rates, was delayed for 1 year and was completed in November 1994.

Phases II and III, including providing information on the time it takes

schools to make refunds to students and send loan checks to lenders, and

a summary of all previous title IV aid a student received while attending

other schools, is on schedule and planned to be completed in the summer

of 1996.

Because actions were recently taken, PSI could not determine if they will

address the recommendation.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Standardize interpretation and enforcement of

legislation and regulations.

Department action: A new office was established in 1995 to provide a

centralized source of title IV operational and policy requirements to

student financial aid professionals outside and staff within the

Department. Some of the services provided include a toll-free line through

which student aid officers can contact Department staff, and an electronic

bulletin board system, both of which provide up-to-date information about

policies and regulations. To standardize enforcement, this office is also

responsible for establishing policy for and implementing a training

program to disseminate legislative, regulatory, and policy requirements.

Because actions were recently taken, PSI could not determine if they will

address the recommendation.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Reduce overly complex regulations and procedures.

Page 25 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

Department action: The Department initiated two programs to reduce

overly complex regulations and procedures. First, starting in 1987, schools

that voluntarily demonstrated they meet certain eligibility criteria were

provided regulatory relief under the Quality Assurance Program.

Specifically, schools were permitted to administer their own process to

verify that the information students reported on financial aid applications

was correct.

Second, in April 1995, the Department began an experimental site program

to provide regulatory relief at more than 100 schools that it determined

performed well in administering student financial aid programs. Some

exceptions for these schools include waivers of the requirements to make

multiple disbursements for single-term loans, and to delay disbursing

funds to a first-time borrower for 30 days.

PSI’s conclusion about the recommendation’s status: In progress

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Review and streamline current hearing and procedural

requirements, eliminating unnecessary delays while guaranteeing basic

due process protection.

Department action: The 1992 HEA removed the requirement that

administrative hearings be held “on the record.” As a result, the

Department amended its regulations authorizing informal hearings to be

held by hearing officials rather than administrative law judges. The

Department plans to look for other ways to simplify hearing procedures

while still ensuring due process and develop written guidelines for OPE

staff to use in participating in hearings.

Because several actions are planned, PSI could not determine if they will

address the recommendation.

PSI’s conclusion about the recommendation’s status: Planned

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Page 26 GAO/HEHS-96-143 Status of Actions
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Status of Actions on PSI Recommendations

Recommendation: Address and report to the Congress on whether

accrediting agency officials involved in the performance of their legitimate

FFELP responsibilities should be subject to reasonable liability limits or be

statutorily protected from lawsuits.

Department action: The Department has not reported to the Congress on

whether accrediting agency officials should be subjected to reasonable

liability limits or statutorily protected from lawsuits. The Department did

not know that the recommendation existed.

PSI’s conclusion about the recommendation’s status: None taken

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Require criminal investigative training and expertise

for its program compliance staff.

Department action: The Department provides annual training for all

program compliance staff, including training in techniques for detecting

and investigating possible fraud and abuse. In the last 2 fiscal years, newly

hired institutional reviewers have received 5 weeks of classroom training

in programmatic topics and techniques for conducting program reviews,

including investigative techniques; and experienced reviewers have

received a 1-week refresher program. All regional institutional review staff

will attend a 2-week training program specifically on criminal investigative

techniques next fiscal year.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop credible inspection and follow-up procedures

to be instituted in program compliance reviews of schools.

Department action: A revised program review guide was issued in

July 1994. It follows a “focus item” approach that directs program

reviewers to review 34 key compliance areas. In addition, the Department

revised institutional review standards to minimize the time needed

Page 27 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

between finalizing a review and issuing a report to ensure that significant

findings receive prompt actions.

PSI continues to be concerned that, in March 1995, the Department

discontinued its policy of performing all program reviews on an

unannounced basis. PSI found that, in the past, some schools may alter

records and engage in activities designed to deceive reviewers when

reviews are announced.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Hire banking and financial auditing specialists to

assist the program compliance review staff in carrying out oversight of

FFELP financial intermediaries.

Department action: Since 1991, GLOS has hired 11 financial analysts. Of

these, three were certified public accountants, and another three were

experienced auditors. In addition, two supervisory financial analysts were

hired—one of whom had a background in financial reviews of banks.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Improve procedures so that the program compliance

staff moves quickly to audit the financial aid records of closed schools to

determine losses and attempt to collect monies owed to the students or

the government.

Department action: The Department provides guidance on closed school

procedures, for example, by directing regional office staff to cancel or

postpone other low-priority scheduled activity, when necessary, to ensure

timely visits of closed schools. Also, the Department has established an

emergency offset process to deny reimbursement requests to schools that

have not submitted closeout audits; denies recertification when owners

close schools that have not fulfilled their closeout responsibilities; and

Page 28 GAO/HEHS-96-143 Status of Actions
Appendix II 

Status of Actions on PSI Recommendations

issues final audit determinations for all unaudited funds to establish

liability against a school, once the period for submitting closeout audits

has expired.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Greatly expand and improve coordination and

communication with other federal agencies. Seek the assistance of the

Departments of Labor and Veterans Affairs in sharing mutually useful

information.

Department action: The Department said that, in the past, it (1) had

discussions with Labor on coordination in which it determined that the

structure of each Department’s respective programs was sufficiently

different that comparisons were not helpful and (2) shared information

about adverse actions with VA; however, this effort was discontinued in the

late 1980s because it was not producing results. As of April 1996, the

Department had not developed initiatives to improve its coordination with

VA and Labor.

PSI’s conclusion about the recommendation’s status: None taken

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Develop ways to assist those students who continue

to be victimized by fraud and abuse with FFELP. Increase efforts to prevent

this type of abuse in the future, and work with students to ease financial

burdens imposed as a result of past abuse.

Department action: The Department developed regulations allowing a

student’s loan to be forgiven if the student was enrolled or withdrew

within 90 days of a school’s closure and could not complete the

educational program for which funds were received. The Department

provides relief to students whose loans were falsely certified by an eligible

school or, if a borrower’s signature was falsified, the loan may be forgiven.

Page 29 GAO/HEHS-96-143 Status of Actions
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Status of Actions on PSI Recommendations

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require principal participants in FFELP to submit

formal statements disclosing any interest they hold in other participating

FFELP entities. Closely review disclosure statements of principal

participants and take appropriate action to prevent instances of potential

conflict of interest.

Department action: The Department is developing a regulatory proposal

requiring guaranty agencies to have a code of ethics that would compel

their staff and affiliates to disclose any interest they hold in participating

student loan entities. The Department plans to publish final regulations by

December 1, 1996. Also, Department regulations require accrediting

agencies to have clear and effective conflict-of-interest controls for its

officials.

Because actions on guaranty agencies are planned, and no action has been

taken on other FFELP participants—such as officers, directors, employees,

and consultants of schools, originating lenders, loan servicers, and state

licensing authorities—PSI could not determine if actions will address the

recommendation.

PSI’s conclusion about the recommendation’s status: Planned

PSI’s conclusion about whether the action generally addressed the

recommendation: Cannot determine

Recommendation: Strictly enforce the regulatory requirement that

accrediting agencies develop ethical standards to ensure that those

involved in key accreditation actions and decisions have no stake in their

outcome.

Department action: The Department has cited several agencies for

having incomplete conflict-of-interest polices, and two agencies have been

cited by the Department for serious noncompliance deficiencies in this

area.

Page 30 GAO/HEHS-96-143 Status of Actions
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Status of Actions on PSI Recommendations

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Prohibit participating FFELP lenders from selling the

promissory note for a guaranteed student loan until after the entire loan

has been disbursed.

Department action: Regulations prohibit a lender from selling a

promissory note until the entire loan is disbursed.

PSI’s conclusion about the recommendation’s status: Complete

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Lenders should be required to wait a specified time to

allow for receipt of cancellations or refunds before sale of the loan.

Department action: The Department believes that PSI’s concerns are no

longer valid because lenders are now required to disburse an entire loan

before it can be sold (see action for previous recommendation).

PSI could not determine if the Department’s claim is reasonable because

the Department could not provide any justification to support its claims.

PSI’s conclusion about the recommendation’s status: None taken

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Student borrowers should be notified of the details of

the sale of their loan by both the seller and buyer.

Department action: Regulations require the old and new holder of a loan

to contact the borrower.

PSI’s conclusion about the recommendation’s status: Complete

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Status of Actions on PSI Recommendations

PSI’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish a pilot program within participating

guaranty agencies and lenders to test the utility of conducting a credit

check on guaranteed student loan applicants to determine the extent to

which potential borrowers have significant adverse credit histories. In

implementing this recommendation, make use of information available

from lenders who are already conducting such checks.

Department action: HEA would have to be amended to conduct credit

checks on student loan applicants. As a result, the Department believed it

lacked authority to implement this recommendation.

PSI’s conclusion about the recommendation’s status: None taken

PSI’s conclusion about whether the action generally addressed the

recommendation: No

Page 32 GAO/HEHS-96-143 Status of Actions
Appendix III 

Status of Actions on OIG Recommendations

The Department of Education’s OIG issued 24 reports with

recommendations for improving the management of student financial aid

programs between September 1991 and June 1995. The status of the

Department’s actions that we report on was determined by the OIG staff

who did the audit work. We did not assess the appropriateness of the

determinations. The following identifies the 24 reports and describes these

reports’ recommendations, Department actions taken, and OIG’s

conclusions about the actions’ status and about whether the actions

generally addressed the recommendations.

Report on the

Transitional Guaranty

Agency’s Role in

Guaranty Agency

Transition Strategy,

ACN 05-40007, June 2,

1995

Recommendation: Consider soliciting structured merger proposals from

strong guaranty agencies that meet predefined criteria for merging with

guaranty agencies that close.

Department action: The Department disagreed with this

recommendation. On the basis of experience with guaranty agencies that

have merged, the Office of Postsecondary Education (OPE) has found that

the guaranty agencies lack the capacity to handle rapid consolidation. OPE

is also identifying strong guaranty agencies through its current round of

reviews. OIG maintains that, by acting on the recommendation, the

Department would have identified candidates for mergers before a

decision by a guaranty agency to close.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Consider requiring early guaranty agency portfolio

reconciliations based on a statistical acceptance sampling plan. This will

facilitate mergers by providing more accurate data for a smoother

transition.

Department action: The Department disagreed with this

recommendation but not with the underlying goal of ensuring data

accuracy. Because of the expense involved, OPE believes reconciliation

should be done only in cases where it is likely an agency’s loan system

data are inaccurate, when an agency’s data will be converted to a new

system because of a consolidation, or when an agency leaves the Federal

Family Education Loan Program (FFELP). OPE also believes its current

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Appendix III 

Status of Actions on OIG Recommendations

efforts to improve the quality of National Student Loan Data System

(NSLDS) data will require that certain guaranty agencies reconcile their

data. OIG maintains the Department does not systematically collect data on

the accuracy of guaranty agency portfolios.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Consider working with the Transitional Guaranty

Agency (TGA) to ensure that appropriate performance measures are in

place to assess the continued need for TGA and its effectiveness.

Department action: OPE is analyzing data it obtained from guaranty

agency reviews to determine performance measures for guarantors as a

whole, and it will discuss with TGA what performance measures could be

used to assess its value to the Department.

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Financial Statement

Audit—U.S.

Department of

Education Federal

Family Education

Loan Program for the

Years Ended

September 30, 1994

and 1993, ACN

17-40302, May 31, 1995

Recommendation: Review and amend cash reconciliation policies and

procedures to make reconciliations more timely and effective. The

Department should (1) continue planned reconciliation enhancements,

(2) require timely posting of adjustments, (3) identify and establish

controls to prevent recurring problems, and (4) consider designing the

Education Central Automated Processing System (EDCAPS) to more fully

automate the reconciliation process.

Department action: OPE is (1) implementing improvements to enhance

the reconciliation program by directly loading general ledger data,

(2) analyzing recurring reconciliation problems to determine the cause and

implement proactive control systems, and (3) analyzing and determining

reconciliation needs during EDCAPS development and replacing, if feasible,

the current program to automate the process further. OPE established

procedures to ensure timely adjustments to the general ledger and

Treasury Department report.

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Status of Actions on OIG Recommendations

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require independent reviews of periodic fund balance

reconciliations and document the results.

Department action: OPE is performing independent reviews of periodic

fund balance reconciliations and documenting the results.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Modify policies and procedures to properly account

for loans receivable under Federal Accounting Standards Advisory Board’s

(FASAB) Statement of Federal Financial Accounting Standards Number 2

(FASAB 2) requirements. Policies and procedures should include

(1) considering new reinsurance reporting requirements, (2) exploring the

capability of producing necessary management reports using NSLDS, and

(3) recalculating the allowance for subsidy on a quarterly basis using

management reports.

Department action: OPE is taking the following actions: (1) implementing

accounting transactions to adjust the subsidy each time a loan’s receivable

balance is adjusted, (2) modifying the system’s contract to adapt

new/revised accounting transactions, and (3) developing reports from

NSLDS to adjust loans’ receivable balances in accordance with new policy.

OPE has developed new receivable transactions in accordance with FASAB 2

and implemented the new transactions in the primary accounting system

(PAS).

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Status of Actions on OIG Recommendations

Recommendation: Test the accuracy and validity of the loan data in NSLDS

as part of the Department’s routine guaranty agency oversight function.

Department action: OPE has identified many data inaccuracies in NSLDS

and plans to develop management reports comparing NSLDS data to data

submitted by guaranty agencies and provide a list of discrepancies to the

Guaranty Agency and Lender Oversight Service (GLOS). OPE also included

testing of the accuracy of NSLDS data in an OMB compliance report for

guaranty agency audits, and formed an OPE data integrity group to better

ensure the accuracy of NSLDS data.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop and monitor an automated audit trail of the

Guaranty Agency Fund Subsystem global edit override process.

Department action: OPE directed the systems contractor to remove the

global override edit code in the Guaranty Agency Fund Subsystem

database. This would require individual edit overrides, which have an

automated audit trail.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Managing for Results:

Review of

Performance-Based

Systems at Selected

Accrediting Agencies,

ACN 06-30004, May 8,

1995

Recommendation: Evaluate accrediting agencies’ standards and

procedures for measuring success in student achievement. To be most

effective, the standards should include (1) the most critical measure of

success—how many of the 2 million students enrolled each year obtained

a training-related job? (2) reasonable steps to verify the accuracy of

member schools’ reported performance outcomes, and (3) a mechanism

for holding schools accountable for unsuccessful job training programs.

Department action: The Department previously took action it believed

addressed the recommendation. It is implementing this recommendation

in accordance with a similar requirement in the 1992 HEA amendments. It

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Appendix III 

Status of Actions on OIG Recommendations

believes that other factors besides job placement should be measured.

Accrediting agencies should also have flexibility to set standards for

measuring these factors and develop other measurements of success

provided they can demonstrate their appropriateness to the Department.

OIG does not believe this is sufficient for the Department to obtain

performance data on accrediting agencies.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Develop a process to collect and compile the reported

performance data from accrediting agencies to determine the overall

success of title IV-funded job training.

Department action: The Department disagreed with this

recommendation. It believes this would impose a considerable burden on

accrediting agencies. The agencies should be given flexibility to collect

and compile such data in ways that minimize burden and maximize their

usefulness for the agency and its member schools. OPE also believes

methodological limitations affect the value of such data. OIG believes the

Department needs to act to ensure itself and the Congress that schools are

providing quality programs and to successfully implement its proposed

new gatekeeping system introduced in July 1995.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Page 37 GAO/HEHS-96-143 Status of Actions
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Status of Actions on OIG Recommendations

Financial Statement

Audit of the U.S.

Department of

Education Federal

Direct Student Loan

Program for the Year

Ended Sept. 30, 1994,

ACN 17-48320, March

17, 1995

Recommendation: Require implementation of procedures to reconcile

advances with specific loans disbursed (in addition to an all-activity

reconciliation, which is performed monthly).

Department action: The Department is developing and automating a

transaction-based payment system to conduct this reconciliation. It plans

to fully implement the system in July 1997.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require schools to use the reimbursement method if

they do not adhere to the Department’s cash management regulations for 2

months. (Under the reimbursement method, the Secretary may require

schools to document costs and enrollment of eligible students and be

reimbursed by the Department, rather than drawing funds in advance from

the school’s title IV allocation.)

Department action: The Institutional Participation and Oversight Service

(IPOS) is revising the program review guide to include procedures to apply

the reimbursement method to schools that do not adhere to the

Department’s cash management regulations. The Department is preparing

regulations to require schools to use alternative loan origination if it is

determined that federal funds are at risk.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Encourage schools to transmit “actual disbursement

records” to the loan servicer (Servicing Center) the day of disbursement

(or as soon as practical) to enable the Servicing Center to “book” the loan.

Department action: Schools have been advised of the need to transmit

disbursement records to the servicer as soon as possible. The Department

also issued regulations to require schools to submit origination records,

promissory notes, and disbursement records within 30 days of

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Status of Actions on OIG Recommendations

disbursements. OPE is developing special reports to be generated from the

new origination system that will identify schools that have drawn down

funds and not reported disbursements in a timely fashion.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Automate and integrate the balancing functions

between the Direct Loan Servicing System (DLSS) and the Financial

Accounting and Reporting System (FARS).

Department action: A Department contractor has developed an

automated reconciliation program for balancing the Student Loan

Servicing System to FARS. The Department plans to put the program into

use after the Program Systems Service’s (PSS) and the Accounting and

Financial Management Service’s (AFMS) comments are addressed.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Provide enhanced training to schools, emphasizing

reconciliation and transaction dating requirements, file structures and

layouts, timing requirements, and critical interfaces with DLSS.

Department action: Regional training sessions on reconciliation and

cash management were held in the fall of 1995. Videos of the sessions are

available to schools that missed the training.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Require that all schools report actual loan

disbursement dates in the school-based software and mainframe systems.

Department action: OPE sent a bulletin to schools in February 1996

clarifying the disbursement date and emphasizing the importance of

correct dates; it advised program review and OIG audit management of this

recommendation to incorporate it into planning program reviews and OIG

audits.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require that mainframe and combination schools

perform comprehensive tests of the school-based systems before going

“live.” (Going “live” refers to transmission of actual data to the

Department.)

Department action: OPE developed and implemented a data interface

testing process between schools and DLSS. Schools are required to perform

testing before going “live.”

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ensure periodic risk-based reviews are performed of

the school-level quality assurance systems, general and environmental

controls, backup and disaster recovery procedures, etc., to identify

problem areas for particular schools and the Federal Direct Student Loan

Program (FDSLP) as a whole.

Department action: OPE shared the recommendation with program

review and OIG audit management to allow them to better plan risk-based

program reviews and OIG audits and to prepare appropriate review and

audit guides. It also revised its plan for periodic OMB-mandated joint

system control reviews to ensure that direct loan system reviews are

performed. OPE plans to include direct loan internal control procedures in

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its program review guide and enhance schools’ software to allow schools

to measure performance.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Enhance school-based software and mainframe

systems to include loan limit checks at the loan servicer and schools.

Department action: OPE made changes to both the school software and

the DLSS Loan Origination Subsystem to include loan limit edits for the

second year of the program.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Inconsistent

Institutional Pell

Grant Reporting

Results in Significant

Expenditure

Discrepancies, ACN

11-30001, September

26, 1994

Recommendation: Require the chief financial officer of each institution

to reconcile and certify the September 30 expenditure reports.

Department action: External and internal work groups have been

meeting to develop requirements for an Integrated Student Aid

Management System to provide a single source for student-level

expenditure reporting by the school business officer. Some changes are

expected for the 1996-97 award year and beyond. OPE also identified the

100 schools with the largest reporting discrepancies and followed up with

them to identify the causes and resolve problems. OPE reduced

authorizations to student aid report levels for schools not filing timely

data.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Require the chief financial officer of each institution

to certify via a final accounting that all student-level data are accurate as

of September 30.

Department action: Same as action in previous recommendation.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Enhance controls over requests for reinstatement of

funds and for increases in authorization after the September 30 adjustment

deadline by (1) requiring a revised final accounting of student-level data to

justify the increases, (2) imposing penalties for repetitive inaccurate and

late submission of final reports, and (3) requiring that an independent

auditor certify the amount of and need for a reinstatement of funds once

closeout is completed.

Department action: OPE implemented the following controls:

(1) adjustments to authorization levels are to be based only on

student-level data, (2) the statement of accounts that includes the Form

272 amounts as well as authorization and student aid report levels will be

sent quarterly to financial aid administrators and business officers to aid in

reconciliation, and (3) emphasis will be placed on timely reporting of

downward adjustments. Additional awards to students will be blocked

until adjustments are reported.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Ineligible Non-U.S.

Citizens Received $70

Million in Pell Grants,

ACN 11-40000,

September 9, 1994

Recommendation: Initiate a data matching agreement with the Social

Security Administration (SSA) to verify citizenship for all federal student

aid applicants that claim U.S. citizenship. Include this procedure with the

forthcoming Social Security number verification.

Department action: The Department entered into a data matching

agreement with SSA in September 1995. The match is run weekly.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Flag all applicant records that fail the citizen

verification and notify each applicant that his/her application is suspended

until the applicant can provide the Department with proof of citizenship.

Department action: OPE has implemented this measure and issued

proposed regulations in September 1995.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Why Use Pell Grants

for Instruction in

English as a Second

Language? Taxpayers

Pay More and

Students Get Less,

ACN 09-40003, August

12, 1994

Recommendation: Request the Congress to eliminate English as a Second

Language (ESL)-only programs from eligibility for the Pell Grant program.

Department action: The Department believes the administration’s

proposed skill grant program indirectly addresses this. The proposal

would eliminate Pell grants for nondegree programs and transfer their

funding to the Labor Department. Students in nondegree programs would

receive grants similar to Pell grants through Labor. ESL funding would not

be specifically disallowed, but a substantial portion of Pell grant funding

for it would shift to the Labor Department under the proposal.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: If necessary, seek more adult education funds for ESL

instruction.

Department action: The Department did not propose any action to

address this recommendation.

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OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Review of

Performance of the

Guaranteed Student

Loan Branches Within

Student Financial

Assistance Programs,

ACN 04-20075,

January 27, 1994

Recommendation: Regional Guaranteed Student Loan Branch (GSLB) staff

should report to the Director of GLOS rather than the Field Operations

Service (FOS) to enforce line authority and responsibility. (GSLB has been

reorganized and renamed the Guarantor and Lender Review Branch

(GLRB).

Department action: The Department disagreed with this

recommendation. OPE believes that setting strategy for reviews by regional

offices is best achieved by GLOS working cooperatively with the regions,

IPOS, and a newly established Regional Operations Division (ROD). OIG

believes that because ROD is administrative in nature, the management

problems it identified will not be resolved. It maintains that GLRBs must be

directly aligned with a unit that manages its operations for improvements

to occur.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No11

Recommendation: GLOS should be held accountable for the operations of

the regional GSLBs and (1) develop priorities for the most vulnerable areas

of review with the Deputy Assistant Secretary and the Institutional

Monitoring Division (IMD), (2) determine GSLB objectives within the

parameters set in (1), (3) determine resources necessary to achieve GSLB

objectives, and (4) establish the basis for the budget with support from

FOS.

Department action:12 The Department disagreed with this

recommendation. OPE believes GLOS’ role is to give direction to regional

office review activities and coordinate these activities with IPOS and ROD.

11OIG plans to reassess the status of the Department’s recent activities on those recommendations that

were not generally addressed.

12In its technical comments on a draft of this report, the Department said that since April 1996, it has

taken additional action on this recommendation.

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OPE also stated that periodic planning sessions have been held to develop a

detailed review plan and budget. Staff needed to carry out the plan were

identified during these sessions. GLOS, IPOS, ROD, FOS, and the regions

participated in these sessions. OPE does agree, however, that GLOS should

be responsible for developing review priorities. OIG believes GLOS should

have greater influence over GLRB operations and ROD’s role should be that

of a support unit for GLOS and the regions.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: The Student Financial Assistance Programs (SFAP)

should fully develop and implement a system that will provide the

necessary data to be used in planning and conducting program reviews.

Department action: OPE responded to this recommendation by providing

a justification of how it undertakes lender reviews. It did not address the

need for an information system.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS, in conjunction with GSLB chiefs, should

(1) develop significant criteria to be used for the selection of candidates

for review, (2) assign weights to the significant criteria, (3) select

candidates for review on the basis of application of weighted criteria, and

(4) determine and assign responsibility for reviewing selected candidates.

Department action: GLOS and GSLB chiefs developed review plans during

fiscal years 1994 and 1995. These included several criteria for prioritizing

entities for review such as covering the largest entities not reviewed in the

last 2 years and responding to complaints from consumers, OIG, or

program participants. OPE, however, felt that weighing criteria would be

unnecessarily cumbersome and did not plan to implement that proposal.

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should ensure coordination among GSLBs in

targeting and reviewing lenders.

Department action: OPE stated that regional offices have cooperated in

targeting and reviewing lenders and that its fiscal year 1994 review plan

reflects this cooperation.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should ensure coverage of those lenders that are

the guaranty agencies’ top 10 or top 2 percent of lenders in the FFELP

portfolios.

Department action: GLOS has provided additional written guidance to

guaranty agencies on lender coverage, but OIG was not satisfied OPE

explained how it would ensure review of any top 10 or top 2 percent of

lenders not reviewed by guaranty agencies as a result of substitution of

reviews of other lenders.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS should implement strategic planning and develop

review priorities in conjunction with the regions. In turn, GLOS should then

coordinate with FOS to determine that resources are available. The

“constellation” process should be fully defined and conveyed to GSLBs to

assist in the systematic review of related problem entities. Appropriate

training should be provided to reviewers to ensure adequate reviews of

targeted entities are conducted.

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Department action: According to OPE, (1) strategic planning was

implemented through the development of the fiscal years 1994 and 1995

review plans, (2) the constellation review process was implemented and

reviewer training has been initiated, and (3) guaranty agency review guide

and workpaper requirements were issued in March 1995.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should develop standards of performance to

measure the quality of the review process.

Department action: OPE is postponing changing employee performance

standards until Departmentwide changes in the appraisal system are

implemented. OIG was not satisfied that OPE explained actions taken to

address disparate quotas set forth in regional General Performance

Appraisal System (GPAS) agreements or the unequal evaluations reviewers

receive because of the different quotas.

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: SFAP should (1) work within the Department to

specifically define and strengthen the knowledge, skills, and abilities

ranking factors used for hiring personnel for GLOS and GSLBs; and (2) for

current staff, arrange for and provide specific technical training to ensure

effective performance.

Department action: Knowledge, skills, and abilities factors for GSLB

chiefs and senior reviewer positions have been revised and rewritten.

Training for (1) reviewer staff on computer applications, (2) regulations

resulting from the HEA amendments of 1992, and (3) policy and workpaper

standardization was conducted between September 1993 and

November 1994.

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: SFAP, with input from GLOS, should develop training

profiles for both new and senior staff to ensure that employees receive

proper and adequate training to effectively perform their jobs.

Consideration should be given to requiring reviewers to achieve a certain

number of hours of useful training each year.

Department action: OPE stated that it believes the use of newly

developed individual development plans help fulfill this recommendation.

OIG maintains that OPE did not address the use of progressive training

profiles, which are more useful in helping staff to assume greater

responsibilities.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS should do the following: (1) Develop standards

for comprehensive reviews. At a minimum, the standards should include

analyzing policies and procedures, internal controls, financial statements,

and software packages. (2) Provide guidance to the regions to foster

uniformity and consistency in the performance of program reviews.

(3) Develop a self-evaluation system to ensure that the regions follow

headquarters guidance and perform comprehensive reviews.

Department action: A new lender audit process is being implemented,

and OPE plans to issue revised guidance to the regions on program review

procedures shortly afterwards. GLOS is analyzing review and evaluation

criteria used by other government agencies responsible for oversight of

lenders’ financial condition to determine their applicability to guaranty

agencies. OIG was not satisfied OPE addressed (3). It also believes a

self-evaluation system would allow OPE to understand what guidance is not

followed and why.

OIG’s conclusion about status of action: In progress

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OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS should require statistical sampling for borrower

file samples on lender reviews. GLOS should ensure that adequate training

is provided to reviewers so that valid statistical samples are drawn and

documented.

Department action: OPE agreed and is planning a training session on

statistical sampling.

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GSLBs should discontinue notifying the lender before

the site visit of the files to be reviewed.

Department action: OPE stated that, whenever possible, it will not notify

lenders before a site visit. It added that, once the use of statistical

sampling is begun, some advance notice may be unavoidable when

samples are large.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should mandate computer usage on program

reviews. SFAP should hire a computer specialist or develop expertise

among current staff. Training on the developed programs should be

provided to reviewers.

Department action: All reviewers have been provided with notebook

computers and are using them. Training was provided. PSS provides

expertise, and recruitment has begun to fill regional systems coordinator

positions to provide expertise in the regional offices.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should develop standards for working papers

concerning content, retention, and indexing. These standards should be

provided to staff, and the staff should be trained to successfully complete

working papers.

Department action: Workpaper standards were developed, and staff

were trained to develop standard workpapers in November 1994.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should develop standards for the expected level

of supervision. At a minimum, these standards should include site visits

and working paper review.

Department action: Refinements were made to supervisory standards in

position descriptions, performance plans, and appraisals. The new

workpaper standards require supervisory review and signoff.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should develop reporting standards that include

the lender’s background information for placing findings in perspective. At

a minimum, these standards should include how the sample was drawn

and from where; the universe size; and prior reviews, including major

findings.

Department action: The reporting format was developed and issued in

the form of written guidance and is used in all regional offices, according

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to OPE. The guidance discusses sections on background and scope of

review but not prior reviews and findings. Regions also share their

background sections with each other to foster improvement. OIG did not

believe OPE’s guidance addressed reporting on lender background and

prior reviews or that OPE adequately supported the sharing of background

sections.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: SFAP should become involved in the operations of the

regions such as significant ongoing and pending reviews, potential

referrals, national scope reviews, etc. SFAP should fully implement the

clearance process of reports with liabilities over $50,000 and referral

issues. Controls should be established to follow up on reviews that merit

headquarters clearance but are not received.

Department action: The Department disagreed with this

recommendation. OPE believes that GLOS is already deeply involved with

the regions through the joint planning process and daily informal

communications. OPE also considered submitting reports for headquarters

review as a quality assurance mechanism but concluded that its team

approach, along with clearer standards, better training, and possibly peer

review, will address quality concerns. Reports with over $50,000 in

liabilities or referral issues are already submitted to headquarters review.

OIG did not believe OPE’s response provided assurance that the clearance

process is fully implemented.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GSLBs should discontinue the practice of issuing

“tentative” closure letters for reviews.

Department action: OPE stopped this practice.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: GLOS should institute and implement procedures

whereby all appeals and challenges are brought to the attention of

headquarters. The procedures should include adequate controls for

follow-up of appeals and challenges that are not brought up to

headquarters.

Department action: OPE disagreed with the recommendation. It stated

that most of this authority was delegated to regional offices. Branch chiefs

have the authority and responsibility to bring significant issues to

headquarters’ attention.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: The Assistant Secretary should (1) propose that the

Congress amend the legislation to strengthen the Department’s ability to

limit, suspend, fine, and terminate lenders and guaranty agencies; (2) once

these regulations and legislation are in place, direct GLOS to provide

training to GSLBs on the avenues available to reviewers; and (3) direct GLOS

to implement a system of determining that appropriate actions are being

taken against lenders and guaranty agencies.

Department action: According to OPE, the Student Loan Reform Act of

1993 and other statutory authorities provided the Department the

authority to take strong action against guaranty agencies and lenders.

Regional office FFELP staff received training on these provisions in fiscal

year 1994. OIG found that the lender audit guide does not address actions

OPE may take against lenders based on audit and review findings and that

OPE did not address (3).

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS should (1) implement policies and procedures to

follow up on why level 3 reviews and reviews with potential indicators of

fraud and abuse were not referred to OIG; (2) develop procedures whereby

noncooperation by the lender is considered a basis for referral to OIG; and

(3) clarify the GSLB mission so that the branches become compliance

components to aid the Department in eliminating fraud and abuse.

Department action: OPE responded that its records show many instances

of referrals to OIG in cases where fraud and abuse were suspected and that

Department personnel are periodically reminded to report suspected fraud

and abuse to OIG. It also advised OIG that it rewrote the GSLB mission

statements. OIG did not believe OPE addressed (2) or provided

documentation to support its referrals to OIG.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No (see footnote 11)

Recommendation: GLOS should refocus its mission and functions to

complement changes made by the HEA amendments of 1992 and the

Student Loan Reform Act of 1993. This will entail (1) monitoring the lender

audit reports to identify problem trends, (2) using reviewers to problem

solve at identified problem lenders, and (3) determining the impact of

FDSLP on the operations of GSLB.

Department action: OPE responded that GLOS refocused its mission to

support the Transition Task Force and has participated in a Department

steering committee to implement the new audit process. Also, lender audit

results will be used to target site visits as soon as they are available. Some

problem solving may be involved, depending on the audit results. OPE also

amended its fiscal year 1994 budget on the basis of an analysis conducted

in response to (3).

OIG’s conclusion about status of action: In progress

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Effectiveness of the

Regional Institutional

Review Branches

Monitoring of

Institutions

Participating in the

Student Financial

Assistance Programs,

ACN 05-20075,

December 21, 1993

Recommendation: Identify the primary role of the regional Institutional

Review Branches (IRB) to (1) ensure compliance with regulations through

reviews that target abusive schools, (2) remove abusive schools from

participation in SFAP, and (3) recover misspent funds through assessment

of liabilities and fines.

Department action: FOS was reorganized as ROD in IPOS effective

January 30, 1995. The new functional statement reiterates the mission of

IRBs.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Reassign technical assistance and training functions

currently being performed by regional IRBs.

Department action: SFAP established three training officer positions for

each region, increasing the number of positions from 10 to 30. Sixteen of

the 30 were filled as of June 1995. A centralized Customer Service Unit

was established to provide technical assistance to the 10 regions. It now

accepts calls from all 10 regions.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ensure that any secondary roles of the regional IRBs

are clearly identified, limited in nature, prioritized, and not in conflict with

their primary role.

Department action: OPE believes the reorganization will minimize the

nonreview responsibilities of IRBs but not entirely eliminate them.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ensure that regional IRBs primary role and any

secondary roles are consistently reflected in performance agreements and

that they coincide with the revised mission statement.

Department action: Regional directors’ staff GPAS will be revised to

reflect the review mission and newly developed standards and ensure

consistency among regions. The new GPAS system was scheduled to take

effect in May 1996.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: OPE should merge IMD-IRB function and the regional

IRBs into one organizational unit.

Department action: As of January 1994, FOS reported to IPOS.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish and maintain an information system that

tracks performance indicators that measure progress toward achieving

regional and headquarters mission. The systems should track performance

indicators by individual institutional review and other regional IRB

activities; monitor resource utilization, including staff time and travel

expenses; review outcomes, including liabilities and fines paid,

administrative actions taken, and abusive schools closed; and track the

results of any appeals.

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Department action: The Postsecondary Education Participants System

(PEPS) has been implemented and is used to generate management reports

to evaluate outcome-based performance management factors such as

those recommended. Weekly summary reports are provided to

headquarters and regional management.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop an information system that meets

headquarters’ and regional IRB managers’ needs.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop appropriate system edit checks and data

entry verification procedures.

Department action: Three PEPS procedure memos were issued detailing

data entry and edit check procedures. PEPS staff provide periodic reports

to highlight data entry and edit check problem areas such as missing

reviewer initials.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop an information system that compares

performance indicators to mission-driven goals.

Department action: ROD generates a weekly program review activity

report from PEPS to provide this information.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: OPE should work with the Department’s Personnel

Management Service and OPM to refine the reviewer position description

to identify the knowledge and skills that successful reviewers need. The

position should require appropriate college education or clearly defined

types and quantities of prior student financial aid experience that should

be considered as a substitute for education. Only candidates that meet the

new requirements should be hired.

Department action: OPE issued senior reviewer position descriptions that

included appropriate knowledge, skills, and abilities, including a

knowledge of sampling techniques and written communications skills, to

recruit qualified senior reviewers. OPE states it has since hired

approximately 100 senior reviewers.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Improve the quality and increase the quantity of

training for reviewers by establishing the following: (1) new employee

training requirements to ensure that training is consistent across regions

and sufficiently detailed to ensure a common base of knowledge for all

staff and developed using regional managers’ insights, (2) a training profile

to establish continuing professional education requirements to enhance

the development of reviewers, and (3) minimum annual requirements for

the total hours each reviewer must spend in training (including regulatory

updates and staff development).

Department action: OPE developed a training module for newly hired

reviewers and conducted its first two sessions in late 1994. The program is

23 weeks long and consists of classroom instruction on the statutes,

regulations, and operation of the title IV programs and on conducting

reviews. The remainder of the time is spent on the job. Although SFAP has

not established a set training profile, it has committed to providing

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ongoing annual training of at least a week’s duration for all reviewers; the

specific topics and emphasis on the training will vary, depending on the

needs of reviewers and the evolving work methods of IPOS. IPOS also

regularly provides regulatory updates through conference calls and

face-to-face meetings of both headquarters and regional staff.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require regional IRB employees to annually disclose

any actual or potential conflicts of interest to regional managers for use in

planning assignments.

Department action: FOS distributed a disclosure memorandum in

January 1995 outlining procedures for IRB employees to disclose any actual

or potential conflicts of interest for use in assignment planning.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Eliminate recently reviewed schools from the factor

list and require regional IRBs to (1) give primary consideration to reviewing

schools with high factor scores and (2) document the reason for selecting

a school for review in the working papers.

Department action: OPE implemented a new prioritized selection system

to identify schools with high factor scores. Regional offices analyze the

factor list to eliminate recently reviewed schools.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Require reviewers to use sound judgment in

determining the scope of a review by identifying review guide areas likely

to result in abuse or financial harm to students and the Department such

as refunds, ability-to-benefit, program length, institution/student eligibility,

and disbursement procedures that the reviewer must cover in every

review. The remaining review guide areas should be prioritized and

completed as time allows. These priorities should be periodically

reevaluated on the basis of past review results and changes in SFAP

requirements. Recent reports by other review agencies should also be used

to expand the scope of institutional reviews.

Department action: The most recent program review guide, issued in

July 1994, discusses the survey review, which is an initial comprehensive

review to determine where more in-depth reviews should be made, and the

concentrated review team approach, to be used when potential problems

are identified. The guide also includes a list of focus items for examination

during survey reviews. OPE also implemented a system to periodically

assess review priorities. ROD also stated that they use other agency reports,

including those issued by guaranty agencies, to assist in pre-review

preparation, establishing the scope of reviews, and comparing findings.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop and require the use of a standardized

sampling approach that reviewers can expand to a valid statistical sample

if they find significant problems. The working papers should identify the

universe and methodology used to select the sample. The reviewer should

project sample results to the universe to estimate the significance of the

deficiency and evaluate the results of any required file reviews.

Department action: Regional reviewers completed training on statistical

sampling techniques in June 1995. Currently, regional reviewers are using

these techniques whenever practical. Statistical sampling updates are

provided, such as during a June 1996 meeting for supervisors.

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish minimum standards to ensure workpaper

documentation is sufficient to support findings. The working papers

should include a summary and the findings; document calculations and

conclusions; identify information sources, preparer, and date; document

significant meetings; and include a table of contents, an indexing system,

and checklists cross-indexed to supporting working papers.

Department action:13 Policies and procedures for workpapers

addressing issues such as documentation, supervision, and maintenance

were prepared. The new standards were pilot tested in four regions, and a

team has been convened to make revisions on the basis of the test results.

An additional testing period was planned and expected to be completed by

June 1996.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Specify minimum requirements for the extent and

documentation of supervisory review. Supervisory review should ensure

that findings are accurate and supported by sufficient competent evidence.

Department action: A project on workpaper documentation is

addressing supervisory review. IPOS is developing a checklist for

supervisory review of workpapers (see footnote 13).

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish file maintenance requirements for

institutional and review files. At a minimum, secure all significant

13In its technical comments on a draft of this report, the Department said that since April 1996, it has

taken additional action on this recommendation.

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documents on an institutional review in the official files. Discourage

maintaining institutional documents in personal files.

Department action: The workpaper documentation project is also

exploring ways to maintain files consistently and ensure document

security. A planned imaging project for long-term document storage has

been deferred for lack of funds.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require IRB reports and Final Program Review

Determination Letters (FPRDL) to relate sample sizes (student counts and

related SFAP funding) to the sampling universe and funding under review.

Department action: The program review guide issued in July 1994

includes a standard description of the sample/population size relationship

as it should appear in program review reports.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require supervisory approval for any findings dropped

between the review report and FPRDL.

Department action: The workpaper documentation project will include

requirements for documenting dropped (or resolved) findings between the

preparation of the review report and issuance of FPRDL.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Require branch chiefs to sign all institutional review

reports and FPRDLs. Section chiefs should sign all other correspondence

between the regional IRB and the reviewed schools. Regions without

section chiefs should require branch chiefs to sign. Reviewers should not

sign any official documents related to the review.

Department action: IPOS issued (1) guidelines specifying the signatures

required to issue program review reports and FPRDLs and (2) revised

delegations of authority for final program review determinations.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Revise institutional review closure standards to

minimize time needed between report and FPRDL issuance and ensure that

significant findings receive prompt actions.

Department action: Review closure standards and sample reporting

formats are contained in the July 1994 program review guide. ROD

generates a periodic status report from PEPS for regional managers

showing program review reports and FPRDLs that exceed standard time

frames. IPOS also issued a memo addressing recommendations for

expediting closure of program review reports.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Reduce the reliance placed on schools to quantify

findings.

Department action: Schools have been provided guidance on conducting

their file reviews. Program reviewers provide the schools with a valid

random statistical sample with a 95-percent confidence level to guide their

reviews. Samples are to be drawn in accordance with the procedures

outlined in the 1994 program review guide.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish standards for using pre-appeal negotiations

of FPRDLs.

Department action: IRB no longer participates in pre-appeal negotiations

with schools. The program review guide outlines appeal standards.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish follow-up procedures that include

(1) regional IRB comments on the final disposition of FPRDLs and

recommendations for administrative action and (2) review of subsequent

Independent Public Accountant (IPA) reports to ensure that IPA commented

on the implementation of corrective action recommended by regional IRBs.

Department action: OPE said that the program review guide issued in

July 1994 addresses this recommendation.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Adopt appropriate standards for completing

institutional reviews.

Department action: Standards were implemented with issuance of the

program review guide in July 1994. Also, FOS is required to monitor and

update performance standards.

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: OPE should conduct periodic peer reviews of the

regional IRBs to assess the adequacy of and adherence to established

standards and procedures and the utilization and possible nationwide

adoption of innovative techniques.

Department action: OPE has delayed implementation of its initiative to

establish peer reviews because of staff limitations. It envisions using a

case management approach. A study of the issue by an outside consultant

is also under way, and IPOS plans to reevaluate the issue upon its

completion.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Arrange for similar organizations to conduct periodic

external peer review of the institutional review function.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Expand regional IRB use of microcomputer

applications to include (1) automated file review work sheets; (2) use of

Pell and FFELP downloads; (3) communications, including the transmittal

of data and review products; and (4) any other institutional review

applications that will promote more effective use of computer equipment.

Department action: (1) Regional review staff received notebook

computers and software. All regions have systems support staff to provide

technical assistance and training. (2) Regional staff received training on a

new automated reimbursement system in 1994 and were issued manuals to

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ensure staff understood the need to diminish the time between an

institution’s request for payment and actual payment. (3) A work group

was formed to explore the use of new computer applications such as

automatic refund calculations and standard paragraphs. It plans to pilot

test and implement some of these applications in fiscal year 1996. (4) ROD

hired a systems analyst who is working to resolve PEPS incompatibility

issues. Once it is completed, a tracking and reporting system is expected

to be put in place by OPE.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Provide sufficient computer training to all staff to

ensure proficiency in the use of available computer equipment and

software.

Department action: OPE stated it provided training on the use of the

notebook computers and the installed software to regional reviewers

during the summer of 1994 and to IPOS headquarters staff in early 1995.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: OPE should pilot test establishing staff specialist

positions, such as legal counsel, computer specialist, reimbursement

specialist, report resolution specialist, and statistician.

Department action: One computer specialist is being hired in each

region and in headquarters. OPE said it is pilot testing the establishment of

the other recommended positions except for statisticians in the regions.

Headquarters will provide statistical support to the regions.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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The Secretary’s

Default Reduction

Initiative—An

Alternative Approach

to Implementing

Sanctions, MIR 93-07,

September 14, 1993

Recommendation: The Department should designate hearing officials

within OPE to conduct the informal hearings for schools appealing an

intent to terminate or other administrative action.

Department action: OPE is discussing the merits of formal hearings with

the Office of General Counsel (OGC) and OIG as well as the feasibility of

establishing an appeals process for termination and fine actions within

OPE. Additional research is under way.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Define, through written guidelines or regulations, the

informal hearing process and the specific procedures for schools to follow

to demonstrate how they have diligently implemented appendix D of the

general provisions regulations for SFAP.

Department action: OPE’s actions to address this recommendation will

depend on the outcome of the pilot project discussed in the following

recommendation’s “Department action” section (see footnote 13).

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Notify all schools that have exceeded the cohort

default rate thresholds defined by regulation that the Department is

considering administrative action due to the school’s high loan default

rate. Included in this notice should be the specific guidance for the schools

to follow to demonstrate how they have diligently implemented appendix

D.

Department action: OPE initiated a pilot project to take termination

actions against schools solely on the basis of their high default rates.

Under the pilot design, OPE will require a small sample of schools to

provide specific documentation of their implementation of appendix D,

initiate termination action against those schools that do not comply, and

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evaluate the success of the test. Termination notices were sent to two

schools solely on the basis of their high default rates. As of February 1996,

a decision is pending for one school and a hearing date has not yet been

set for the second school. In addition, IPOS plans to act against a select

group of schools that exceeded the threshold default rate for multiple

years, that have not filed an appeal, and that have more than 30 borrowers.

(See footnote 13.)

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: The regional review staff should work with the

Compliance and Enforcement Division in evaluating documentation

submitted by schools. The burden should be on the school to demonstrate

that it acted diligently and successfully to reduce defaults, and the

documentation submitted should be sufficient to support the school’s

assertion. If not, the school should be terminated.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Initiate intent to terminate proceedings against all

schools that have exceeded the cohort default rate thresholds defined by

regulation and could not demonstrate to the Department that they had

diligently and successfully implemented appendix D.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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ED Should Prohibit

Conflicts of Interest

Between Guaranty

Agencies and

Affiliated

Organizations, MIR

93-02, March 15, 1993

Recommendation: The Department should amend its regulations to

prohibit guaranty agencies or their officers and employees from having

any affiliation with an entity that is a participant or service provider in

FFELP. Develop timetables for implementation. If necessary, seek

legislative changes to accomplish this goal.

Department action: The Department plans to issue amended regulations

addressing guaranty agencies’ conflict of interest by December 1996.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Title IV Funding for

Vocational Training

Should Consider

Labor Market Needs

and Performance

Standards, MIR 93-03,

March 12, 1993

Recommendation: The Department should take the lead in convening an

interagency task force to study different funding approaches for students

enrolled in vocational training programs. Funding approaches should

include the labor market needs of employers and success rates of schools

in placing graduates.

Department action: OPE and OIG agreed that the State Postsecondary

Review Entity (SPRE) regulations issued in April 1994 required SPREs to

consider schools’ responses to labor market needs in evaluating their

performance. The administration’s proposed Skill Grant Program for

funding vocational training would also require participating schools to

report job placement data to prospective students. (Due to the lack of

federal funding, however, SPREs are not currently operating.)

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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OPE’s Lender and

Guarantee Agency

Oversight Function

Should Focus More on

Audit Follow-Up, ACN

11-20015, December 1,

1992

Recommendation: Notify AFMS to establish accounts receivables totaling

almost $1 million for the four guaranty agency audit reports described in

this audit report.

Department action: The liabilities identified in the OIG report were fully

paid.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Notify AFMS to establish an accounts receivables at the

time it finalizes Program Determination Letters (PDL) and ensure that AFMS

records the correct amount.

Department action: OPE implemented a process to establish accounts

receivables whenever a PDL identifies a civil penalty or liability owed by a

participating institution. OPE tracks progress quarterly.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Implement an audit recommendation follow-up

tracking system to track audits until the Lender and State Agency Review

Branch (LSARB) receives documentation verifying that auditees completed

all corrective actions and paid amounts due the Department.

Department action: A database system for tracking audits was

developed. It covers schools, lenders, and guaranty agencies and includes

amounts owed that have not been recovered.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Review all prior guaranty agencies’ audit reports and

(1) identify all recommendations that auditees have not implemented and

all audit-related accounts receivables not paid, (2) notify AFMS to establish

accounts receivables for amounts not recovered, and (3) enter all

incomplete corrective actions in the audit follow-up tracking system.

Department action: OPE reviewed prior PDLs, verified corrective actions

for completeness, followed up as needed, and entered all incomplete

corrective actions into the database system.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Notify OPE management that, because of the priorities

of other duties and a lack of staff, LSARB can not perform all its delegated

duties. In its notice to OPE management, LSARB should identify all those

duties it cannot perform and their associated risk.

Department action: The previously described database system for

tracking audits was implemented. GLOS sought an increase in staff to meet

its responsibilities, including new ones resulting from the 1992 HEA

amendments. OPE states that GLOS attempted to negotiate shifting oversight

of guaranty agencies’ reviews of lenders to IPOS.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop criteria for acceptable alternate guaranty

agency review plans and for approval of the substitution or extension of

lender and institution program reviews.

Department action: GLOS has developed criteria under which guaranty

agencies can make substitutions. These include cases, for example, where

schools have closed or merged or that were recently reviewed by another

entity. Substitutions are agreed to in writing.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop a tracking system to ensure that guaranty

agencies perform the required program reviews and monitor substitutions

and extensions.

Department action: Because of changes and uncertainty in the

guaranteed loan community, including the likely departure of many

lenders and guaranty agencies from participation in FFELP, GLOS decided

not to establish a tracking system. It is relying on the use of direct requests

for approval of substitutions as previously discussed.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Adopt a policy requiring the return of the midpoint

when the projected amount to be recovered is a range.

Department action: GLOS revised its policy to require the recovery of

midpoint amounts.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Conduct an analysis of and maintain support for its

decision when the amount sought for recovery varies from the midpoint of

a projected range.

Department action: GLOS established a practice of requiring reviewers to

maintain support for recovery amounts that vary from midpoint

projections.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish a goal to elevate program reviews to the

Assistant Secretary when LSARB cannot reach a decision within 6 months

from the program review issue date.

Department action: GLOS does not believe implementing this

recommendation is feasible because of the following: (1) Complex review

issues are referred to headquarters for resolution before issuance of a

review. OPE believes a 6-month limit for resolving issues may not be

realistic in these cases. (2) Elevating unresolved issues to the Assistant

Secretary is unlikely to improve the timeliness of decisions because the

appeal level would move to the Secretary, requiring additional reviews and

clearances.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

ED Needs to Change

the Legislative

Definition of Loans in

Repayment, MIR

92-13, September 4,

1992

Recommendation: The Department should request the Congress to

modify the definition of loans in repayment in HEA or allow the Department

to define loans in repayment.

Department action: OPE initiated an effort to consult with appropriate

Department officials to determine if a recommendation should be made to

the Secretary to propose a statutory amendment to HEA as part of its 1997

reauthorization. However, because of uncertainty about the future of FFELP

and efforts to reduce regulatory burdens, the effort was set aside pending

future developments. OIG does not believe OPE has provided sufficient

documentation of its activities.

OIG’s conclusion about status of action: Planned

OIG’s conclusion about whether the action generally addressed the

recommendation: No

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Loan Servicers for the

Guaranteed Student

Loan Programs

(GSLP) Need to Be

Better Controlled to

Save ED Millions in

GSLP Losses, MIR

92-12, August 19, 1992

Recommendation: Require FFELP servicers to report to the Department

their FFELP portfolios by size and lenders (report should match quarterly

interest billing reports). The reporting should also identify each guaranty

agency being serviced and identify any other computer time-sharing with

FFEL lenders.

Department action: The Department issued regulations on April 29,

1994, that incorporate much of the recommended actions but make no

reference to computer time-sharing.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish regulations that specifically require FFELP

servicers to provide Department representatives timely access to all FFELP

portfolio information, records, operations, and personnel. This should

include the servicer’s FFEL loan servicing portfolio in total, not just a single

lender or guaranty agency, or loan portfolio that involves computer

time-sharing.

Department action: The Department published a Notice of Proposed

Rulemaking on February 17, 1994, that incorporates the recommended

actions. The final rule was published on April 29, 1994.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require FFELP servicers to provide and maintain

documentation in support of due diligence claims for delinquent

borrowers. This should specifically include support for

computer-generated records. In addition, the Department should require

servicers to develop and apply adequate internal controls over due

diligence and their documentation of delinquent borrowers. The lenders

being serviced should be required to substantiate on a timely basis that

their servicers are in compliance.

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Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Allow the Department to apply the limitation,

suspension, and termination process to FFELP servicers. In addition, allow

the Department’s program review staff to fine servicers who knowingly

violate FFELP laws and regulations.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Improving

Documentation

Requirements for

Determining

Eligibility for Student

Financial Assistance

Programs, MIR 92-11,

July 29, 1992

Recommendation: Require schools to maintain a copy of each student’s

high school diploma or General Education Degree on file. In cases where

such documentation is unavailable or cannot be provided by the student,

the Department should require that the student be admitted to the school

only under the Department’s ability-to-benefit requirements.

Department action: OPE developed a requirement that such

documentation be maintained as part of a Notice of Proposed Rulemaking

for ability-to-benefit standards. However, OMB rejected the final regulations

in November 1994, and the Department did not pursue the matter further.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Stricter Standards

Needed for the

Granting of

Forbearances, MIR

92-10, June 30, 1992

Recommendation: Promulgation of a mandatory requirement that defines

for what cumulative length of time consecutive and nonconsecutive

forbearances can be granted and how often the borrower’s eligibility for a

forbearance should be reevaluated.

Department action: OPE believes that 1992 HEA amendments and

subsequent regulations addressed this recommendation. Basically, the

statute allows for forbearance up to 3 years depending on the borrower’s

debt-to-income ratio, and the regulations allow for individual forbearance

periods up to 1 year. OIG believes regulations proposed by the Department

regarding forbearance address its recommendation that eligibility be

reevaluated.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Guidance, in the form of a “Dear Colleague” letter,

should be issued to clarify the following expectations: (1) Detailed

documentation is to be retained to fully support each forbearance. If the

forbearance is based on financial hardship, determination and approval of

the hardship should be clearly documented in the file; and (2) Borrowers

are to be provided an option to select (within the latitude provided by the

regulations) the forbearance terms that best meet their needs.

Department action: The Department issued regulations specifying

borrowers’ rights to forbearance options and lender documentation

requirements. In consultation with the student aid community, OPE is

developing a standard forbearance form that will ensure borrowers are

aware of their forbearance options.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Effectiveness of the

Office of

Postsecondary

Education’s Effort to

Collect Perkins Loan

Excess Cash, MIR

92-08, April 1, 1992

Recommendation: Determine excess cash in the manner described in the

“Dear Colleague” letters to schools and request the schools to return the

funds.

Department action: OPE identified 641 schools with about $53 million in

excess cash in accordance with the recommendation and completed

collection of the excess in April 1994.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Complete the planned initiatives to more aggressively

collect excess cash, including (1) imposing sanctions on nonrespondents;

(2) requiring better coordination within the Department to promptly notify

the Division of Program Operations and Systems when excess cash is

identified or returned; and (3) initiating fines or other administrative

action for not returning excess cash.

Department action: In response to (1) and (3), OPE developed a system of

imposing fines if a school does not respond to the Department’s demand

for excess cash refunds after a certain time period. In response to (2), OPE

revised the program review guide to include an examination for excess

cash in Perkins Loan funds and established a process to notify the

Campus-Based Programs Systems Division of schools where excess cash

has been found.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ask OGC to review the HEA provisions and advise if any

impediment exists to offsetting excess cash against federal capital

contributions (FCC).

Department action: OGC identified provisions of the Department’s

regulations that permit such offsets. However, a provision in the 1992 HEA

amendments requires that any collectible excess cash amounts be reduced

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Status of Actions on OIG Recommendations

by the amount of FCC received in the last 2 completed award years. OPE

believes this reduces the amount of excess cash the Department can

collect.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Notify the Financial Management Service (FMS) to

establish an account receivable for the estimated excess cash for each

school that fails to respond to the “Dear Colleague” letter within 60 days.

Department action: OPE incorporated this step as part of the process for

notifying the Campus-Based Systems Division of schools with excess cash.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

About $300 Million in

Guaranteed Student

Loans and Pell Grants

Will Be Authorized for

Students With

Defaulted Loans for

the 12 Months Ending

June 30, 1992, MIR

92-07, March 19, 1992

Recommendation: Take immediate action to incorporate tape dump

default data into the screening system in place at the central processor.

Department action: The Department implemented the Guaranty Agency

Default Match in the central processing system in July 1992. This match

identified applicants for title IV assistance who were listed as being in

default on another title IV loan in the Department’s tape dump. A comment

was printed on the student aid report sent to the applicant’s school(s)

advising them of the default and seeking confirmation of resolution.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Modify the current screening process to more

appropriately identify applicants that have previously defaulted on a

student loan and not authorize them further student financial aid funds.

Department action: The Department is conducting the title IV default

match with Social Security number and date of birth. This match is used to

identify applicants that have defaulted on any student loans assigned to

the Department for collection.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Owners of Corporate

Proprietary Schools

Need to Be Held

Personally Liable for

Title IV Program

Losses, MIR 92-06,

March 16, 1992

Recommendation: Redraft the program participation agreement to

require owners of corporate proprietary schools to personally guarantee

program-related liabilities.

Department action: The Department issued final regulations in

April 1994 defining circumstances under which school owners responsible

for program-related liabilities would be allowed to continue to participate

in the program.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop policy and implement procedures to ensure

that program-related liabilities are aggressively pursued and collected. At a

minimum, the procedures should require that all schools participating in

the title IV program report to the Department, on at least a yearly basis,

their current title IV refund liabilities and certify the accuracy of such

statements as a prerequisite to further program participation.

Department action: A contract was awarded to conduct initial reviews of

school financial statements upon their annual submission. The 1992 HEA

amendments also require annual compliance audits of schools.

OIG’s conclusion about status of action: Complete

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

ED Needs to

Strengthen Student

Loan Cure

Procedures, MIR

92-05, March 13, 1992

Recommendation: Amend the regulations to allow loans with major due

diligence violations to be cured only if lenders obtain either three full

monthly payments or a signed repayment agreement plus two full monthly

payments.

Department action: The Department included a bulletin it previously

issued on cure procedures in new regulations it issued on December 18,

1992. When it was first issued in 1988, this bulletin provided that a loan

could be considered cured upon receipt of one monthly payment or a

signed repayment agreement from the borrower. The 1992 regulations did

not change this requirement.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Amend the regulations to limit the time period during

which a lender can cure a loan.

Department action: In the December 1992 regulations, the Department

revised its bulletin on cure procedures to limit the time a lender has to

cure a loan to 3 years for any loans that lose their reinsurance status on or

after December 1, 1992. OIG concluded that any time limit over 1 year

would lead to unacceptably high default rates unless additional measures

were taken to prevent higher defaults.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Amend the regulations to limit the proportion of loans

that a lender can cure.

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Department action: The Department did not issue any provisions in its

cure bulletin addressing this recommendation. Negotiated rule-making

sessions, held to develop the cure bulletin, did not develop a consensus on

this issue. The Department decided further efforts would not be

productive.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Use these recommendations in any cure procedures

that are developed for guarantee agencies.

Department action: Upon completion of the negotiated rule-making

sessions previously mentioned, the Department believed it had achieved as

much as possible and did not wish to further address the cure procedures.

Department officials also believe that lenders have incentives to promptly

cure loans to avoid higher servicing costs and loss of interest payments

and that the removal of a statutory provision that limited its ability to

refuse to cure loans under certain circumstances has given the

Department sufficient authority to impose these limitations.

OIG, however, believes that stricter requirements are necessary to convince

lenders that the federal government is serious about enforcing its rules for

collecting guaranteed loans, and it asserts that the Department will incur

about $150 million in excess costs under current cure procedures.

OIG’s conclusion about status of action: None taken

OIG’s conclusion about whether the action generally addressed the

recommendation: No

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The Office of Student

Financial Assistance

Did Not Assure That

All Institutions

Submitted Audit

Reports or That It

Recovered All

Misspent Funds, ACN

11-00010, February 6,

1992

Recommendation: Identify and refer for termination all schools with

overdue audit reports, starting with those most overdue and with the most

title IV funds at risk.

Department action: OPE has in place a system of referring all schools

with overdue audits to the Compliance and Enforcement Division (CED) for

administrative action, including termination. The Audit Resolution Branch

(ARB) is in the process of notifying schools with missing audits by letter of

the requirement to submit one and that action will be taken if they do not

do so. OPE statistics show that many termination and fine actions have

been taken against schools, including 54 terminations in fiscal year 1992.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop controls to ensure that all audit reports are

entered into the Institutional Data System (IDS) for all institutions covered

by each audit report.

Department action: ARB stated it had implemented the recommended

controls. However, on the basis of a follow-up review, OIG does not believe

the controls are sufficient (see footnote 13).

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Develop controls to ensure that when audit reports

are overdue, institutions are notified and appropriate actions are taken.

Department action: ARB adopted the recommendation and modified IDS

to track overdue audits.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: ARB should reconcile its audit appeals list with the FMS

accounts receivable report and submit an amended audit clearance

document (ACD) to FMS for all appeals that were decided.

Department action: ARB submitted an amended ACD to FMS for all decided

appeals. It also obtains a signature from FMS personnel verifying receipt of

amended PDLs or ACDs.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Implement procedures to require ARB reviewers to

reconcile the audit appeals list with the FMS accounts receivable report

each quarter. Submit an amended ACD to FMS within 5 days for all appeals

that it settles, or an administrative law judge decides so that FMS can

resume collection actions.

Department action: ARB identified and reconciled appeals versus

follow-up cases and also reconciled fines written off or adjusted in the

prior administration. Pending informal fines were referred to CED for

action. ARB has adopted a policy of immediately referring to CED cases in

which audits are submitted late.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish one fine schedule for all violations, that is,

significant audit deficiencies, recurring audit deficiencies, and failure to

comply with the biennial audit requirement. Also, the Division of Audit and

Program Review should establish a minimum fine amount and

progressively increase the amount of the fine up to the full regulatory

authority of $25,000 per violation.

Department action: CED has developed a formal fine schedule.

OIG’s conclusion about status of action: In progress

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OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Eliminate the practice of proposing informal fines and

give ARB the authority to assess formal fines.

Department action: ARB has taken steps to eliminate informal fines and

establish formal referral procedures to notify FMS. Appeals are handled in

CED. ARB implemented this process for late or missing audits and expects

to have the entire process implemented in the spring of 1996.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish controls to ensure that ARB promptly notifies

FMS to establish accounts receivable when fines are assessed.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Implement an appeal process for fines.

Department action: Same as action for previous recommendation.

OIG’s conclusion about status of action: In progress

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Review all audits within 30 days of report issuance

and request the schools to provide the auditors with all supporting

documentation for unsupported costs. Notify the schools that if they do

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Status of Actions on OIG Recommendations

not provide the information to auditors and have auditors report the

results of their review by the specified date, ARB is required to disallow the

costs.

Department action: OPE established a process of assigning audits to staff

for the type of review recommended within 5 days of receipt and has hired

additional staff to conduct these reviews.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Accept only audited documentation as support for

expenditures and disallow all unsupported costs when the schools have

not provided the auditors with satisfactory supporting evidence.

Department action: ARB established a policy of requiring schools to

refund amounts for unsupported costs unless they provide documentation

verified by their auditors. When a liability is $25,000 or more, such

verification must be provided on the auditor’s stationery within 45 days of

the time the school receives the program determination report.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Consider waiving the student financial aid biennial

audit requirement for schools that received less than $25,000 in annual

funding. Also, increase the waiver up to $100,000, after consultation with

OMB.

Department action: ARB has occasionally modified the audit requirement

for schools receiving small amounts of federal student aid funds, allowing

these schools to submit audits every 3 to 4 years. According to the

Department, existing statute and regulations do not allow it to waive the

audit requirement entirely. At this time, the Department indicated no plans

to raise the threshold to $100,000.

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OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ensure that ARB procedures to calculate the amount of

misspent funds for all disallowances with error rates over 10 percent are

implemented by all reviewers.

Department action: ARB established a process to project audit liabilities

to the total population in cases where audit error rates exceed 10 percent.

This included supervisory review.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

ED Should Act to

Reduce Interest and

Special Allowance

Costs for Cancelled

Student Loans, MIR

91-10, September 3,

1991

Recommendation: Amend regulations to provide that, for a school with a

loan cancellation rate above 10 percent, the guaranty agency may not

guarantee a loan and lenders may not disburse the loan check until the

student has attended class for 30 days. As an alternative, the amount of

interest and special allowance paid to the holders of canceled FFELP loans

will depend on the cancellation rate of the school the student attends.

Department action: The 1992 HEA amendments require that for loans

made on or after October 1, 1992, lenders may not charge interest or

receive interest subsidies for loans in which disbursement checks were

not cashed or electronic funds transfers not completed. In addition,

lenders may not receive interest on first disbursements of FFELs for any

period before 10 days of the disbursement of a loan by check, and 3 days

before the disbursement of a loan by electronic funds transfers. OPE issued

guidance to implement these provisions.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: The regulations should be amended to provide that

the original lenders cannot sell FFELs to the secondary market until the

checks are cashed.

Department action: The 1992 HEA amendments prohibit lenders from

selling or transferring a promissory note for any FFEL until its final

disbursement has been made. OPE issued guidance and regulations to

implement this provision.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Improvements

Needed to Strengthen

Guarantee Agency

School Reviews, MIR

91-09, June 19, 1991

Recommendation: Establish minimum standards in each of the standard

areas applicable to guarantee agency reviews.

Department action: OPE included these standards in the revised school

site review guide for guaranty agencies issued in July 1992.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Revise the school review guide to improve the

comparability and usefulness of the school review reports.

Department action: OPE revised the school site review guide used by

guaranty agencies to incorporate specific items suggested by OIG. The

revised guide was issued in July 1992.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendation: Implement the proposed change to school review

selection criteria as soon as possible.

Department action: The Department issued regulations in

December 1992 that outlined new school review selection criteria for

guaranty agencies.

OIG’s conclusion about status of action: Complete

OIG’s conclusion about whether the action generally addressed the

recommendation: Yes

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GAO issued eight reports with recommendations for improving the

management of student financial aid between April 1992 and July 1995.

The status of the Department’s actions is based on information that our

staff developed. The following identifies the eight reports and describes

the reports’ recommendations, Department actions taken, and our

conclusions about the actions’ status and about whether the actions

generally addressed the recommendations.

Student Financial Aid:

Data Not Fully

Utilized to Identify

Inappropriately

Awarded Loans and

Grants

(GAO/HEHS-95-89,

July 11, 1995)

Recommendation: Take actions to improve the accuracy and

completeness of student financial aid data, such as continuing to screen

data entered into the National Student Loan Data System (NSLDS) to ensure

a consistent format and testing the accuracy and validity of data in NSLDS.

Department action: The Department is carrying out the

recommendation. In addition, it is formulating and enacting plans to

ensure the accuracy, completeness, and timeliness of NSLDS data.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Analyze student aid data more closely to identify

patterns of noncompliance with federal requirements, such as following

up on students identified as ineligible in the data matches, and take

appropriate corrective actions.

Department action: The Department is implementing the

recommendation. Specifically, in August 1995, it established a project team

to review its application system and NSLDS data to ensure that ineligible

students are prevented from receiving new loans and grants.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

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Federal Family

Education Loan

Information System:

Weak Computer

Controls Increase

Risk of Unauthorized

Access to Sensitive

Data

(GAO/AIMD-95-117,

June 12, 1995)

Recommendation: Develop and implement a computer security

administration program to oversee the Federal Family Education Loan

Program (FFELP) information system’s computer security control

operations.

Department action: In August 1995, the Office of Postsecondary

Education’s (OPE) Computer Security Office was given responsibility for

providing computer security oversight of FFELP. In conjunction with this

action, in September 1995, broad institutional policies and procedures that

were part of OPE’s Information Technology Security Manual were adopted

to cover FFELP.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop and require the FFELP information system’s

contractor to implement policies and procedures to limit access

authorizations for system users to only those computer programs and data

needed to perform their duties and to approve the creation of special user

identifications.

Department action: The Department required its contractor to place

sensitive system data sets in a restricted library and sensitive utility

programs in a controlled library as of April 1, 1995. In addition, the FFELP

Security Officer has performed periodic reviews to ensure that

inappropriate changes were not made to the sensitive data sets. Also, it

formalized the process to create special user identifications.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Identify sensitive data files and programs and monitor

successful access to them, including access by users having special access

privileges.

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Department action: On April 28, 1995, the Department implemented

security procedures to monitor/review FFELP system access by system

programmers. In addition, on September 30, 1995, it procured a new audit

software product to help detect unauthorized changes to FFELP relational

databases.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require the FFELP information system’s contractor to

devise controls to ensure that only approved and tested changes are made

to the system software.

Department action: In April 1995, the Department reemphasized to the

contractor the ongoing requirement that all proposed system software

changes be documented, tested, and approved before implementing

changes. Failure to adhere to this will result in sanctions being imposed on

the contractor. In addition, the Department started to provide contractor

oversight through the weekly configuration control board meetings.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Financial Audit:

Federal Family

Education Loan

Program’s Financial

Statements for Fiscal

Years 1993 and 1992

(GAO/AIMD-94-131,

June 30, 1994)

Recommendation: Perform periodic analyses to determine whether

lenders are submitting billing reports promptly, within 90 days after the

end of the quarter. These analyses should include follow-up procedures

with individual lenders who have not promptly submitted billing reports.

Department action: The Department has, for the past 3 years,

deactivated lenders that failed to submit billing reports for four quarters.

Effective December 1994, the Department further reduced the billing

requirement to two quarters. Lenders and their guaranty agencies are

notified of the deactivation after nonreceipt of the lender’s billing for two

quarters. To be reactivated, lenders must request their guaranty agency to

contact the Department and provide documentation of the reason for

reactivation.

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Recommendations

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Clearly identify security responsibilities and oversight

for the Department’s general ledger system, including appointing a

security officer with responsibilities for the overall security of the system.

Department action: The Department has hired a security officer

responsible for the overall security of the general ledger system.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require and ensure that security administrators and

supporting technical staff who are responsible for the general ledger

system have security training.

Department action: Staff officers responsible for the general ledger

system were given 2 days of training in August 1995. Additional training is

planned during 1996.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

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Recommendations

Student Loans:

Millions Loaned

Inappropriately to

U.S. Nationals at

Foreign Medical

Schools

(GAO/HEHS-94-28,

Jan. 21, 1994)

Recommendation: Improve the standards and processes used to

determine the eligibility of foreign medical schools.

Department action: The Secretary established an advisory panel of

medical experts, the National Committee on Foreign Medical Education

and Accreditation (NCFMEA), to carry out its statutory mandate to

determine whether the approval and accreditation standards and

processes used by foreign countries are comparable with those in the

United States. On April 28, 1994, regulations were issued that established

standards that foreign medical schools must meet to participate in FFELP.

The Department expects that the regulatory standards will be

implemented during a recertification process for foreign medical schools

as soon as the comparability determinations are made by NCFMEA and the

policy decisions presented in the paper mentioned above are finalized.

Until these actions are finalized, an assessment cannot be made.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish policies and procedures to help ensure that

FFELP loans are made only to students attending medical programs that

meet the Department’s standards.

Department action: The Department is drafting a position paper for the

Assistant Secretary for Postsecondary Education’s approval of the

Department’s process for recognizing foreign medical schools. Until the

new process is approved, an assessment cannot be conducted.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Require that foreign medical schools demonstrate that

they have formal affiliation agreements with the facilities they use to train

their students and their training facilities are equivalent to those that

educate U.S. medical students.

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Department action: The Department is drafting a position paper for the

Assistant Secretary for Postsecondary Education’s approval of the

Department’s process for recognizing foreign medical schools. According

to Department officials, the new application requests information that will

ensure the Department’s regulatory standards are met. Until the new

process is approved, an assessment cannot be conducted.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Establish criteria for triggering site visits to schools’

campuses and clinical training facilities to review the schools’ operations

and facilities and verify information.

Department action: The Department has developed and implemented

criteria to trigger site visits to foreign medical schools. Since that time, the

Department has conducted several site visits and is currently taking action

to withdraw the eligibility of some of these schools.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish formal policies and procedures for the

process of approving foreign medical schools.

Department action: The Department will develop internal procedures for

the review and approval of foreign medical schools. A revised application

process for these schools’ participation in title IV programs will be

developed. Until the new application process is approved, an assessment

cannot be conducted.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: No

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Recommendations

Recommendation: Develop appropriate guidance for lenders and

guaranty agencies through a weekly status report listing all changes in

schools’ status.

Department action: The Department provides notification and guidance

to lenders and guaranty agencies through a weekly status report listing all

schools’ status.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Ensure that approving officials are knowledgeable and

staff are properly supervised.

Department action: The Department created a separate team

responsible for approving foreign schools. A determination cannot be

made without further work to assess staff responsibilities and supervision.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Require applicants for loans to identify when they

plan to attend a foreign medical school.

Department action: The Department disagreed with identifying foreign

medical schools on the student’s application, indicating that it will identify

foreign medical schools through the school application process and assign

an OPE number with the addition of a suffix to indicate a medical school.

GAO’s conclusion about status of action: None taken

GAO’s conclusion about whether the action generally addressed the

recommendation: No

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Recommendations

Recommendation: In cases of schools not cooperating with the

Department in providing information, exercise its authority to prevent or

terminate their continued eligibility in FFELP.

Department action: The Department has regulations stating that the

failure of a foreign medical school to provide, release, or authorize release

of information required will render the school ineligible to apply for

participation in FFELP.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Share information that the Department obtains on

foreign medical schools with state medical boards for their use in

evaluating the education of licensure applicants.

Department action: The Department plans to provide the Federation of

State Medical Boards (FSMB) a list of approved foreign medical schools and

the countries where they are located following the September 1996 NCFMEA

meeting.

GAO’s conclusion about status of action: Planned

GAO’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Work with FSMB to determine that information that the

Department gathers would be most useful to the state boards.

Department action: The Department has begun to determine what

information it believes FSMBs need and will provide that information when

its work is completed. Until the Secretary approves the new process, an

assessment cannot be conducted.

GAO’s conclusion about status of action: Planned

GAO’s conclusion about whether the action generally addressed the

recommendation: No

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Recommendations

Financial

Management:

Education’s Student

Loan Program

Controls Over

Lenders Need

Improvement

(GAO/AIMD-93-33,

Sept. 9, 1993)

Recommendation: Develop a comprehensive strategy for determining the

accuracy of information reported on lenders’ quarterly billings.

Department action: In March 1995, the Department’s OIG issued its

lender audit guide, which requires an independent public accountant (IPA)

to perform an examination-level attestation relative to the lender

management’s assertions about certain compliance requirements

concerning information reported on its quarterly billings.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Monitor and follow up with lenders whose quarterly

billings fail to meet the Department’s internal automated edit checks and

reasonability tests.

Department action: The Department developed reasonability edits in

FFELP subsystems to compare billing data reported on the Department’s

Form 799 and data submitted to NSLDS. Once the edits and level of

reasonableness are finalized in April 1997, the Department will analyze the

variances and forward the results to the Guaranty Agency and Lender and

Oversight Service (GLOS) for follow-up.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop and implement procedures for converting

major automated systems, including a requirement that parallel systems be

run for an appropriate time period, to ensure that new systems are

properly processing program data.

Department action: The Department directed that adequate time be

given to testing system conversions and that all contracts include a

parallel systems testing period.

GAO’s conclusion about status of action: Complete

Page 96 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Department of

Education:

Long-Standing

Management

Problems Hamper

Reforms

(GAO/HRD-93-47, May

28, 1993)

Recommendation: Enhance management leadership throughout the

Department and strengthen agency culture.

Department action: The Secretary has initiated efforts to build a spirit of

teamwork among political and career officials and to encourage a free

flow of ideas on how best to address management problems in the

Department.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Create, for information, financial, and human

resources management, strategic visions and strategic plans that are

integrated with the Department’s overall strategic plans and coordinated

with the Department’s comprehensive strategic management process.

Department action: The Department (1) implemented its strategic and

tactical plans for information technology resources, (2) established a

committee to address problems in data collection and dissemination, and

(3) refined its financial management strategic plan.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Page 97 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

Financial Audit:

Guaranteed Student

Loan Program’s

Internal Controls and

Structure Need

Improvement

(GAO/AIMD-93-20,

Mar. 16, 1993)

Recommendation: Require that guaranty agencies and lenders annually

provide the Department an IPA’s positive attestation on the claims for

payment submitted to the federal government, and the basis for such

attestation, including an opinion on the adequacy of internal controls over

such claims.

Department action: In March 1995, the Department’s OIG issued its

lender audit guide, which requires an IPA to perform an examination-level

attestation relative to the lender management’s assertions about certain

compliance requirements concerning information reported on its quarterly

billings. OIG is updating the guaranty agency audit guidance. This update is

expected to be completed by June 1996 for implementation on fiscal year

1996 single audits. A separate guaranty agency audit guide will not be

issued by the Department.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Test billings from guaranty agencies and lenders as

part of the Department’s internal reviews.

Department action: A manual process has been developed matching

billing data reported by guaranty agencies with data reported in NSLDS. The

Department is currently monitoring the top five guaranty agencies. In

addition, a task order has been completed that put in place the capability

for the Department to match lender billings with data reported in NSLDS.

The Department anticipates completing the entire project by April 1997.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require staff to follow up on questioned costs and

other amounts owed on the basis of reviews of guaranty agencies and

lenders within a designated time period from the time findings are

reported.

Page 98 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

Department action: The Department is assessing its efforts to follow up

on questioned costs and other amounts owed to the Department.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Study the feasibility of requiring guaranty agencies to

standardize their FFELP loan accounting systems.

Department action: The Department concurred in the goal of this

recommendation. It believes, however, that because some guaranty

agencies are departments within state governments and must follow state

accounting procedures, to require the guaranty agencies to use a standard

loan accounting system would not be feasible. In addition, with the current

number of guaranty agencies, this recommendation is not practical.

However, if the number of guaranty agencies were to be reduced to a

manageable level, the Department would pursue the implementation of

standardized accounting systems.

GAO’s conclusion about status of action: None taken

GAO’s conclusion about whether the action generally addressed the

recommendation: No

Recommendation: Reassess and, if appropriate, adjust NSLDS

implementation date after completion of a detailed system design.

Department action: NSLDS’ design was completed, and the system was

implemented in November 1994.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop written procedures detailing the

methodology to be used to derive the estimate of loan guarantee subsidies

Page 99 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

and requiring that each year’s estimate be fully documented and approved

by the Department’s chief financial officer.

Department action: During 1993, the Department developed written

procedures detailing the methodology used to derive the estimate of loan

guarantee subsidies.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Establish and maintain subsidiary ledgers for FFELP.

Department action: The Department issued a task order to the FFELP

contractor to develop auditable subsidiary ledgers. However, the technical

and business proposals were unacceptable to the Department.

Consequently, the Department modified its approach to buy a commercial

off-the-shelf package that will considerably reduce the cost of the effort.

The Department anticipates completing this effort in December 1997.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop procedures to ensure that the general ledger

is periodically reconciled to subsidiary records maintained by OPE.

Department action: The Department will develop and implement

reconciliation procedures to coincide with its revised approach to

purchase a commercial off-the-shelf software package for FFELP subledger

development. It expects to complete efforts by December 1997.

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Page 100 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

Recommendation: Establish an acceptance testing group responsible for

independently testing FFELP application system changes before

implementation.

Department action: In March 1994, the Department established

acceptance testing groups.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Implement procedures to ensure that internal control

reviews and risk assessments of the FFELP information systems are

performed periodically as required by OMB Circulars A-123, Internal

Control Systems; A-127, Financial Management Systems; and A-130,

Management of Federal Information Resources.

Department action: In June 1994, the Department developed procedures

to ensure that all FFELP systems are reviewed and risk assessments

performed as required by regulations.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Implement controls described in the Department’s

Automated Data Processing Technical Controls Handbook to ensure that

all data received from guaranty agencies and lenders are consistent and

accurate.

Department action: The Department implemented controls described in

the Technical Controls Handbook to assist in ensuring that all data

received from guaranty agencies and lenders are consistent and accurate.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Page 101 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

Recommendation: Enhance the existing computer disaster recovery plan

to include contingency options at Department headquarters and regional

offices regarding key original documents.

Department action: The Department has established an improved

disaster recovery plan to include having key documents sent directly to

the Department’s information system contractor for storage and requiring

that all key documents be photocopied before being sent to the contractor.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Require that the security administrator and

appropriate supporting technical staff have formal training in the specific

operating systems and access control software used by FFELP contractor.

Department action: In September 1994, the FFELP security administrator

completed training on both the operating system and access control

software used by the FFELP contractor.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Develop a comprehensive plan for revising the role of

guaranty agencies and the manner in which they are compensated.

Department action: The continuance of the Federal Direct Student Loan

Program, which has allowed the Department to implement direct loans to

student borrowers, is being assessed by the Congress. If fully

implemented, the need for guaranty agencies would diminish. The

Department is also reviewing the role of guaranty agencies in the current

environment and has a test case in progress involving one guaranty

agency. Using this model, guaranty agencies will be compensated for

efforts to avoid defaults, particularly in the preclaims area. This

experiment should be in place by June 1996, pending approval by OMB. If

successful, the Department plans to expand it to other guaranty agencies.

Page 102 GAO/HEHS-96-143 Status of Actions
Appendix IV 

Status of Actions on GAO

Recommendations

GAO’s conclusion about status of action: In progress

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Department of

Education:

Management

Commitment Needed

to Improve

Information

Resources

Management

(GAO/IMTEC-92-17,

Apr. 20, 1992)

Recommendation: Develop a departmentwide information resources

management (IRM) strategy and plan that is linked to overall Department

goals and objectives.

Department action: The Department prepares annual departmentwide

strategic plans and tactical IRM plans. The Department’s plans are

blueprints that support the improvement and development of information

systems and improve the capabilities employees require to carry out the

Department’s mission and to achieve its goals.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Recommendation: Direct the senior IRM official to develop, in

conjunction with the Department’s key operating components, an effective

departmentwide information planning process that meets federal

guidance.

Department action: The Department established and activated the

Information Management Committee and combined this effort with its

strategic planning process. The committee developed a survey to collect

the data required to create a departmental database and established and

expanded its contacts with the national interest groups concerned with

the problems of data element standardization and the electronic transfer

of information. These activities will continue indefinitely.

GAO’s conclusion about status of action: Complete

GAO’s conclusion about whether the action generally addressed the

recommendation: Yes

Page 103 GAO/HEHS-96-143 Status of Actions
Appendix V 

Comments From the Department of

Education

Page 104 GAO/HEHS-96-143 Status of Actions
Appendix V 

Comments From the Department of

Education

Page 105 GAO/HEHS-96-143 Status of Actions
Appendix V 

Comments From the Department of

Education

Page 106 GAO/HEHS-96-143 Status of Actions
Appendix VI 

Staff Acknowledgments

The following team members also contributed to this report: Scott M.

Berger and Joel R. Marus, Evaluators; Julian P. Klazkin, Senior Attorney;

and Laurel H. Rabin, Communications Analyst.

Page 107 GAO/HEHS-96-143 Status of Actions
Related GAO Products

Student Financial Aid: Data Not Fully Utilized to Identify Inappropriately

Awarded Loans and Grants (GAO/HEHS-95-89, July 11, 1995).

Student Financial Aid: Data Not Fully Utilized to Identify Inappropriately

Awarded Loans and Grants (GAO/T-HEHS-95-1995, July 12, 1995).

Federal Family Education Loan Information System: Weak Computer

Controls Increase Risk of Unauthorized Access to Sensitive Data

(GAO/AIMD-95-117, June 12, 1995).

High Risk Series: Student Financial Aid Programs (GAO/HR-95-10, Feb. 95).

Financial Audit: Federal Family Education Loan Program’s Financial

Statements for Fiscal Years 1993 and 1992 (GAO/AIMD-94-131, June 30, 1994).

Student Loans: Millions Loaned Inappropriately to U.S. Nationals at

Foreign Medical Schools (GAO/HEHS-94-28, Jan. 21, 1994).

Financial Management: Education’s Student Loan Program Controls Over

Lenders Need Improvement (GAO/AIMD-93-33, Sept. 9, 1993).

Direct Student Loans: The Department of Education’s Implementation of

Direct Lending (GAO/HRD-93-26, June 10, 1994).

Financial Audit: Guaranteed Student Loan Program’s Internal Controls and

Structure Need Improvement (GAO/AFMD-93-20, Mar. 16, 1993).

Department of Education: Long-Standing Management Problems Hamper

Reforms (GAO/HRD-93-47, May 28, 1993).

Department of Education: Management Commitment Needed to Improve

Information Resources Management (GAO/IMTEC-92-17, Apr. 20, 1992).

(104833) Page 108 GAO/HEHS-96-143 Status of Actions
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