Ed. Dept. Cited for Finance Abuses

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At least $450 million in Department of Education funds have been misused through improper payments, fraud, and other instances of financial mismanagement in the past three years, the agency's inspector general said last week.

"The Department of Education has many serious financial-management challenges," Inspector General Lorraine Lewis said during an April 3 hearing convened by the House education committee's Subcommittee on Select Education. The hearing focused on why the department recently failed—for the third year in a row—to earn a "clean" audit of its financial records.

Ms. Lewis noted that while the department's most recent annual audit, completed in late February, represents an improvement over the previous one, "much work remains." She said that the department still could not provide adequate documentation to support all its financial conclusions, and that it inconsistently processed certain transactions.

Rep. Peter Hoekstra, R-Mich., the chairman of the newly created subcommittee, has been sharply critical of the department's financial practices for several years. He had harsh words for the agency again last week.

"We've got a department that manages about $80 billion to $100 billion per year, and they're doing it with a ... Third World accounting system," Mr. Hoekstra charged.

Still Vulnerable

Ms. Lewis directed attention to department employees' release of duplicate payments to grantees and vendors. While the department itself had identified eight instances of duplicate payments, totaling $198 million between May 1998 and September 2000, she said her office turned up 13 more instances totaling an additional $55 million. All the duplicate funding, which accounts for more than half the $450 million estimate of misused money, has since been recovered, she said.

However, Ms. Lewis said she could not provide an exact figure for how much additional money has been recovered.

An official with the General Accounting Office, Congress' investigative arm, said his office had identified a range of issues that leave the department vulnerable to further instances of waste, fraud, and abuse. Rep. Hoekstra and others asked the GAO last year to review selected accounts that seemed especially susceptible to improper payments. That review is still under way. ("GAO Prepares for Education Department Audit," Sept. 27, 2000.)

During the hearing, Jeffrey C. Steinhoff, the GAO's managing director of financial management and assurance, pointed out several problem areas. First, he said, the Education Department does not adequately separate duties among the various employees involved in issuing checks.

Mr. Steinhoff said that, currently, 21 department employees can prepare, sign, and mail checks of up to $10,000 "without involving anyone else."

"This leaves the system open to fraud and abuse," he said.

He also said the department has serious deficiencies in its monitoring process for purchases made with government credit cards. In a four-month period, the GAO found that, of the 676 monthly statements reviewed, 141 valued at a total of nearly $1 million were not reviewed by an approving official.

Mr. Steinhoff also cited inadequate audit trails for tracing transactions to their origins, as well as other weaknesses.

Overall, he cautioned against concentrating on simply working to get a clean audit. Without "tangible improvements to the underlying systems and controls," he said, a clean audit would represent "a hollow victory."

Bipartisan Concern

Lindsay Kozberg, a spokeswoman for Secretary of Education Rod Paige, said her boss, who took office in January, is committed to addressing the problems.

"The secretary has a strong interest in building public confidence in the department and has a reputation as a strong manager," she said. "He'll be making management issues a priority here."

Mr. Hoekstra said that financial-management issues had already opened the door to criminal behavior.

"Basically, what we see is that when we have this kind of environment with lax financial controls, we create an environment that does allow for illegal activity," he contended. "It's not a very pretty picture."

Several allegations of criminal conduct have come to light within the past year. For example, between January 1997 and December 1999, several department employees and contractors allegedly were involved in a theft ring that stole more than $300,000 in electronic equipment and collected $600,000 in false overtime pay, federal investigators said last year. As of last fall, three individuals had pleaded guilty and criminal charges had been filed against others.

Rep. Tim Roemer, the ranking Democrat on the Select Education Subcommittee, said he was deeply concerned about the department's financial management problems. He made clear that the subcommittee would continue to give the issues raised last week careful scrutiny.

"There is bipartisan frustration, and bipartisan determination to get to the bottom of this," the Indiana Democrat said. "This is the fourth hearing that we've had on this in the last two years. And I look forward to the day when these hearings are no longer necessary."

Vol. 20, Issue 30, Page 30

Published in Print: April 11, 2001, as Ed. Dept. Cited for Finance Abuses
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