Education Funding

Auditors Give Ed. Dept. First ‘Clean’ Review in Six Years

By Lisa Fine Goldstein — February 19, 2003 3 min read
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The Department of Education, plagued in recent years by financial mismanagement and incidents of fraud, has earned its first “clean” audit report by independent auditors in six years.

The accounting giant Ernst & Young bestowed that grade after reviewing the department’s annual financial records for fiscal 2002, which ended Sept. 30 of last year. In awarding a clean audit, reviewers found the agency had adequately documented its financial statements and demonstrated their reliability.

Secretary of Education Rod Paige said the report marks a turning point in efforts to improve the agency’s image. He said he hopes to make the agency a leader in accountability.

“Not only did we not get a clean audit in many years, we didn’t expect to,” Mr. Paige said at a Feb. 12 news briefing held to trumpet the report. “The same high standards we expect from state and local agencies in accountability we must first demand of ourselves.”

The report, dated late last month, is only the second in the department’s 23-year history to be considered clean. The last time the department earned that distinction was in 1997.

According to department officials, the agency made strides toward a clean audit by putting into place a series of major financial management overhauls and oversight measures over the past two years. (“Report: Ed. Dept. Financial Steps Will Halt Abuses,” Nov. 7, 2001.)

The department failed several past audits because it did not even have complete financial data, Mr. Paige said.

But even with that progress, auditors said the department still faced “significant financial-management issues” during fiscal 2002.

For example, auditors said the agency continued to have trouble explaining some of its accounting practices. They found discrepancies between agency records and those of other cabinet departments. The report also noted differences between the amounts recorded by the department for defaulted loans and amounts in guarantee-agency records.

Moreover, the agency’s oversight of student loans remains on the General Accounting Office’s “high risk” list. But one of the prerequisites for getting the loan program off the GAO list was for the department to receive a clean audit.

“It was clean, not perfect,” Deputy Secretary of Education William D. Hansen said of the new audit. “We still have a lot to do.”

Crime Wave

The Education Department has been involved in several scandals involving waste, fraud, abuse, and mismanagement. The incidents have been well-documented in previous audits by the department’s inspector general, the GAO, and independent auditors.

Employees and their confederates outside the department have been charged with or convicted of, variously, filing for false overtime or spending agency funds on equipment and luxury goods for their personal use.

Secretary Paige said curbs on use of agency credit cards have reduced the threat of future incidents of abuse. The agency has allowed fewer people access to credit or purchase cards, has reduced credit limits on the cards, and put electronic blocks into place to stop improper purchases.

For example, a transaction would not go through for someone trying to use a card to buy something in a blocked category, such as “veterinary services.”

In addition, the agency has cut down on inadvertently paying out grants to states more than once. By retrieving duplicated grant money, the department has recovered $350 million of $450 million that was missing in previous audits, officials said.

“This has been an obsessive movement for improvement,” Mr. Paige said. “We can fly a flag of victory.”

The offenders have largely been brought to justice, Mr. Paige said.

Four people have been indicted on federal charges of stealing money— funds intended for South Dakota schools—to buy luxury cars and real estate. Those charged in the incident were apprehended after a car dealer called the FBI when the workers tried to buy a red Corvette. One has pleaded guilty; the other three await trial in June.

In addition, 19 people have pleaded guilty or have been convicted after standing trial for a scheme in which they spent hundreds of thousands of taxpayer dollars on computers, cellphones, digital cameras, compact disc players, and a 61-inch color television.

That group’s leader, according to Mr. Paige, was Elizabeth C. Mellen, a former telecommunications specialist with the department. She is scheduled to be sentenced in March, along with her husband, Luther Mellen, who was an employee of the Environmental Protection Agency.

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