Financial Management:

Poor Internal Controls Expose Department of Education to Improper Payments

GAO-01-1151: Published: Sep 28, 2001. Publicly Released: Oct 29, 2001.

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Internal control weaknesses in the Department of Education's payment processes make the department vulnerable to improper payments. GAO focused on three types of disbursements made from May 1998 through September 2000--grants and loans totaling $181.4 billion, third party drafts totaling $55 million, and government purchase card transactions totaling $22 million. In the grant and loan area, edit checks and other key controls were missing from Education's payment system. For example, Education's student aid application processing system lacked an automated edit check that would identify students who were much older than expected. Several internal control weaknesses made the third party draft payment process susceptible to improper payments. GAO found 268 instances involving $8.9 million in which Education employees circumvented a system control designed to avoid duplicate payments. While analyzing Education's use of government purchase cards, GAO also found several internal control weaknesses, including serious deficiencies in the department's process for reviewing and approving purchase card transactions. More than one-third of the 903 purchase cardholders' monthly statements reviewed lacked proper review and approval for payment. GAO summarized this report in testimony before Congress; see Financial Management: Poor Internal Control Exposes Department of Education to improper payments by Linda M. Calbom, Director of Financial Management and Assurance, before the Select Education Subcommittee, House Committee on Education and the Workforce. GAO-01-997T, July 24, 2001.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Education issued new policies and procedures including an updated Administrative Communication System Directive on purchase cards. The revised directive provides detailed instructions on cardholder and approving official responsibilities for reviewing and approving purchase card transactions. Among other things, the policies and procedures (1) prohibit personal use of the card and split purchases to circumvent the cardholders' single purchase limits, and (2) require approving officials to review the appropriateness of each individual purchase. In addition, the OCFO has trained all approving officials and alternate approving officials in purchase card policy.

    Recommendation: To help reduce the likelihood that improper purchases are made with government purchase cards, the Secretary of Education should strengthen the process of reviewing and approving purchase card transactions, focusing on identifying split purchases and other inappropriate transactions.

    Agency Affected: Department of Education

  2. Status: Closed - Implemented

    Comments: Education issued an updated Administrative Communication System Directive on purchase cards. The directive, which was revised in January 2002, strengthens the department's policies and procedures regarding appropriate use of the purchase card. In addition, the department has trained its cardholders and approving officials on these new policies and procedures.

    Recommendation: To help reduce the likelihood that improper purchases are made with government purchase cards, the Secretary of Education should reiterate to all employees established policies regarding the appropriate use of government purchase cards.

    Agency Affected: Department of Education

  3. Status: Closed - Implemented

    Comments: In November 2001, the department's Federal Student Aid (FSA) office used the edit checks and other data (for school year 2000/2001) from its systems to assign risk factors to schools so that it could identify those schools that had abnormal concentrations of certain characteristics, such as those GAO found (i.e., older, non-citizen Pell Grant recipients) at schools that improperly disbursed Pell Grants. FSA identified 20 such schools. FSA determined that some of the schools were already under investigation by the Office of Inspector General (OIG). For other schools FSA conducted on-site reviews and (1) referred two schools to the OIG for possible fraudulent activity, (2) determined there were no adverse findings for some schools, and (3) found violations at other schools resulting in liabilities totaling about $22,000 being assessed. FSA repeated this process using 2001/2002, and 2002/2003 school year data. According to FSA staff, this process will continue.

    Recommendation: To help ensure that Pell Grants are not disbursed to ineligible students, the Secretary of Education should design and implement a formal, routine process to investigate unusual disbursement patterns identified by the edit checks.

    Agency Affected: Department of Education

  4. Status: Closed - Implemented

    Comments: Education has implemented an edit check in the student aid application processing system to identify all applicants whose dates of birth indicate they are 75 years of age or older. An application that indicates the student is 75 or older will be rejected until the student verifies he/she is 75 or older or makes a correction if the birth date is incorrect.

    Recommendation: To help ensure that Pell Grants are not disbursed to ineligible students, the Secretary of Education should establish appropriate edit checks to identify unusual grant and loan disbursement patterns.

    Agency Affected: Department of Education

  5. Status: Closed - Implemented

    Comments: Education has blocked over 300 MCCs, preventing cardholders from purchasing many types of inappropriate goods and services.

    Recommendation: To help reduce the likelihood that improper purchases are made with government purchase cards, the Secretary of Education should expand the use of Merchant Category Codes to block transactions with certain vendors.

    Agency Affected: Department of Education

 

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