U.S. Department of Education Office of Inspector General

1. U.S. Department of Education Office of Inspector General Fundamentals of Title IV Administration Office of Inspector General Investigation Services Overview Presented by OIG Investigation Services

2. AGENDA • OIG Organization and Mission • FSA and OIG Coordination • Sources of Allegations • Fraud Indicators • Examples of Title IV Fraud Schemes • Detecting and Preventing Distance Education Fraud • Standards of Administrative Capability • Criminal Liability • Civil Liability • Contact Information • Question and Answer

3. Inspector General Act of 1978 …to prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Education Department programs and operations.

4. OIG Mission Statement To promote the efficiency, effectiveness, and integrity of the Department's programs and operations, we conduct independent and objective audits, investigations, inspections, and other activities.

5. ORGANIZATIONAL CHART Part of the Department BUT… Independent

6. OIG Components • Audit Services • Investigation Services • Evaluation, Inspection and Management Services • Information Technology Audits and Computer • Crime Investigations • Immediate Office/Counsel/Public Affairs

8. FSA and OIG Coordination The Office of Inspector General assists the Department in promoting the integrity of the Title IV programs. • Review and comment on all regulations to suggest areas for improvement. • Regularly exchange information with FSA to identify current issues in compliance and abuse and coordinate oversight and investigatory activities when appropriate.

9. FSA and OIG Coordination Investigative Services also issues Investigative Program Advisory Reports (IPAR) to the Department, including FSA. An IPAR alerts FSA about findings from investigations and makes recommendations to mitigate future risks of fraud in the Title IV programs. An IPAR issued in September 2011 resulted in FSA issuing a “Dear Colleague” letter (GEN-11-17) which provides guidance to address potential fraud in the Federal student aid programs at institutions of higher education that offer distance education programs. This letter provides an overview of the fraud schemes that the OIG detected and recommends immediate steps that institutions can take to detect and prevent fraud

10. Fraud A deliberate distortion of the truth in an attempt to obtain something of value. or Lying and cheating.

11. Sources of Allegations • OIG Hotline • OIG Audits and Inspections • Department Program Offices • School Employees and Officials • Guarantee Agencies • Contractors and Sub-contractors • Grantees and Sub-grantees • Citizens and Students • Competing Vendors/Schools • Other Federal Agencies • U.S. Attorney’s Offices • Other OIG Investigations • State and Local Law Enforcement Agencies • Federal Bureau of Investigation • Qui Tam Actions

12. Evidence Gathering • Statutory and Regulatory Access to Records • Consensual Search/Access • Search Warrant • Court Order • Subpoenas • Grand Jury • Administrative • Interviews

13. Statutory and Regulatory Access to Records • Under the Inspector General Act of 1978, as amended, OIG can access any records available to the Department of Education in order to perform audits, investigations and inspections of Department programs and operations. • The Family Educational Rights and Privacy Act (FERPA) requires schools receiving funding from the Department of Education to protect the privacy of student education records. In many cases consent must be received from a parent or student before records can be disclosed. • FERPA provides that consent is not required in order to disclose student records to the Office of Inspector General. The regulations provide that representatives of the Secretary, which include OIG, may have access without prior consent in connection with an audit, evaluation, or enforcement of legal requirements related to the Department’s programs. FERPA regulations can be found at 34 C.F.R. Part 99, http://www2.ed.gov/policy/gen/guid/fpco/index.html

14. Fraud Risks • One person in control • No separation of duties • Lack of internal controls/ignoring controls • No prior audits • Repeat audit findings • High turnover of personnel • Unexplained entries in records • Unusually large amounts of payments for cash • Inadequate or missing documentation • Inability to answer or respond to basic questions • Altered records • Non-serial number transactions • Inventories and financial records not reconciled • Unauthorized transactions • Related Party Transaction

15. Civil False Claims Act31 U.S.C. § 3729 • Knowingly presents, or causes to be presented, to the United States Government a false or fraudulent claim for payment or approval • …or makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or to conceal, avoid, or decrease an obligation to the Government. • Burden of Proof – “Preponderance of the Evidence” (More likely than not). • Specific Intent to Defraud the Government not an Element. • Liable for Civil Penalties of between $5.5K and $11K per count plus 3 times the amount of actual damages.

16. Civil False Claims Act31 U.S.C. § 3729 Knowing and Knowingly Defined.--For purposes of this section, the terms ``knowing'' and ``knowingly'' mean that a person, with respect to information: • has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information, and no proof of specific intent to defraud is required.

17. Criminal Penalties Education Fraud Title 20 U.S.C. § 1097 (a) • Any person who knowingly and willfully embezzles, misapplies, steals, obtains by fraud, false statement, or forgery, or fails to refund any funds, assets, or property provided or insured under this subchapter and part C of subchapter I of chapter 34 of Title 42, or attempts to embezzle,…. • Persons convicted of a felony shall be fined not more than $20,000 or imprisoned for not more than 5 years, or both. • Attempt is defined as, “an undertaking to do an act that entails more than mere preparation but does not result in the successful completion of the act.”

18. Other Criminal Statutes Used in Connection with OIG cases: • 18 USC § 371 - CONSPIRACY • 18 USC § 1001 - FALSE STATEMENTS • 18 USC § 1341 - MAIL FRAUD • 18 USC § 1343 - WIRE FRAUD • 18 USC § 1014 - BANK FRAUD • 18 USC § 641 - THEFT OF GOVERNMENT FUNDS • 18 USC § 666 - THEFT CONCERNING FEDERAL PROGRAMS • 18 USC § 1030 - COMPUTER FRAUD/EXCEEDING ACCESS

19. Examples of Title IV Fraud Schemes Related to Schools • FAFSA fraud- enrollment • Falsification of GEDs/HS Diplomas • Falsification of attendance and Satisfactory Academic Progress • Falsification of grades • Failure to make refunds Loan theft/ forgeries • Ghost students • Leasing of eligibility • Default rate fraud • 90/10 Rule manipulation scheme • Financial statement falsification • ATB fraud • Falsified last date of attendance • Obstruction of a federal audit or program review. • Fraud/Theft by School Employees

20. Example of OIG Investigation Falsified Attendance Records School officials engage in a scheme to defraud the Department’s FSA programs through the use of falsified attendance records in order to receive, or retain, Title IV funds. This type of scheme can include: • Marking students present when they are absent. • Falsifying “make-up” hours. • Falsifying the “Last Date of Attendance.” • Falsifying the number of classroom hours offered and taken by students. • Falsifying internship/externship hours and records.

21. Example of OIG Investigation Failure to Make Refund A school is required to determine the earned and unearned portions of Title IV aid as of the date the student ceased attendance based on the amount of time the student spent in attendance or, in the case of a clock-hour program, was scheduled to be in attendance. School officials engage in schemes to withhold making refunds to the Title IV programs by: • Falsifying the “Last Date of Attendance” to avoid making refunds. • Calculating refunds but don’t return the Title IV funds. • Falsifying the refund calculation to conceal Title IV refunds due to ED. This scheme is a criminal act under 20 USC 1097. Based on a U.S. Supreme Court decision, BATES v. US (1997), the government is not required to prove that failure to make refunds was done with criminal intent. Government needs to prove only that an official was aware refunds were due and chose not to pay them.

22. Example of OIG Investigation Obstruction of a Federal Audit School officials, with the intent to deceive or defraud, obstruct or impede a Federal auditor in the performance of their official duties relating to the administration of the Title IV programs. This type of scheme can include: • “Cleaning files” by removing or altering documents. • Providing misleading and evasive documents or statements. • Providing false statements to auditors or program reviewers. • “Holding back” requested or relevant information. • “Coaching” employees or students to make false statements. • Changing records during an audit or program review. The term “Federal auditor” means any person employed on a full- or part-time or contractual basis to perform an audit, program review, or a quality assurance inspection for or on behalf of the Department.

23. Example of OIG Investigation Default Rate Manipulation A high cohort default rate (CDR) could trigger an administrative action against a school making it ineligible to participate in the Title IV programs. School officials engage in a scheme to fraudulently lower the school’s CDR by: • Making payments to lenders or servicers on behalf of students • Completing fraudulent forbearance or deferment forms. • Contacting lenders pretending to be students to gather payment information. • Misreporting when a student stops attending school.

24. Example of OIG Investigation 90/10 Rule Manipulation As per the “90/10 Rule”, to be eligible for FSA participation, a proprietary school must derive at least 10% of its revenues for each fiscal year from sources other than the FSA programs, or be subject to administrative action. A proprietary school must disclose the percentage of its revenues derived from the FSA programs in its annual audited financial statements School officials engage in a scheme to alter the school’s 90/10 ratio calculation by: • Over reporting the cash payments received by students. • Falsely using institutional “grants” in the form of tuition waivers. • Falsely reporting donations from a third party that are to be used for institutional scholarships. • Falsely reporting “school loans” that do not generate an inflow of cash and are later written off.

25. Recent School Employee Fraud Headlines Florida - Former Everglades University Financial Aid Director Sentenced - A former Director of Financial Aid at Everglades University was sentenced to serve a year and a day in prison, 3 years of supervised release, 50 hours of community service, and was ordered to pay nearly $93,000 in restitution after pleading guilty to 20 counts of student aid fraud. The former official used her position to embezzle more than $88,800 in student aid loan checks from students. New York - City University of New York Employee Sentenced - A former employeeat the City University of New York was sentenced to serve 30 months in prison for attempting to defraud the school and the Department of more than $3 million in Recovery Act funds. New York - Former Iona College Vice President Sentenced-The former Vice President of Finance was sentenced to time served in prison, 3 years of probation, community service, and was ordered to pay more than $352,800 in restitution for embezzling more than $850,000 from the school. From 1999 to 2009, the former official submitted false vendor invoices and credit card bills for personal expenses to be paid by the school.

26. Recent School Employee Fraud Headlines (cont.) New York - Former Anthem Institute Employee Sentenced-A former Anthem Institute admissions representativewas sentenced to serve 1 year of probation and was ordered to pay a $250 fine. The employee forged high school diplomas and GED certificates in order to enroll students who did not meet standard eligibility requirements. As a result of her fraudulent actions, 11 students received at least $73,000 in Federal student aid to which they were not entitled. Pennsylvania - Point Park University Agrees to $1.4 Million Civil Settlement - Point Park University agreed to pay $1.4 million to settle allegations that it intentionally discriminated against certain classes of students in awarding Federal Supplemental Education Opportunity Grant (FSEOG) Program funds. The University was alleged to have used a formula that purposely excluded commuter and part-time students from receiving FSEOG funds to which they were entitled to receive.

27. Examples of Title IV Fraud Schemes Related to Students • FAFSA Fraud: • Social Security Number • Alien Registration Status • Dependency Status • Income and Assets • Number of Family Members in College • Falsification of GEDs/HS Diplomas • Ability To Benefit Fraud • Identity Theft • Distance Fraud Schemes

28. Example of OIG Investigation Distance Education Fraud These fraud rings generally target institutions with low tuition in the context of distance education programs and involve a ringleader who: • Obtains identifying information from “straw” students by promising financial gain.  • Completes multiple financial aid applications using the information collected.  • Applies for admission under the institution's open admissions program.  • Participates minimally in the amount of on-line interaction to secure disbursements. Once the institution draws down Federal student aid funds, deducts the institutional charges assessed the straw student, and disburses the credit balances to the straw student by check or debit card. Straw students then give a portion of the proceeds to the ringleaders while keeping the remaining portion.

29. Detecting/Preventing Distance Education Fraud Detecting fraud before funds have been disbursed is the best way to combat this crime.  Some recommended procedures include implementing automated protocols that monitor information in your student information data system to identify instances where a number of students: • Use the same Internet Protocol (lP) address to complete and submit an admissions application. • Use the same IP address to participate in the on-line academic program. • Use the same e-mail address to submit an admissions application. • Use the same e -mail address to participate in the on-line academic program. • Appear to reside in a geographic location that is anomalous to the locations of most students in the program. Schools can modify disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive. Schools have the authority to: • Delay disbursement of Title IV funds until the student has participated in the distance education program for a longer and more substantiated period of time. • Make more frequent disbursements of Title IV funds so that not all of the payment period's award is disbursed at the beginning of the period.

30. Recent Distance Education Fraud Headlines Pennsylvania - Leader of Identity Theft Ring, Five Others Sentenced - The ringleader of an identity theft scheme and five of his co-conspirators were sentenced for their roles in a fraud scheme. The individuals submitted false certifications of employment, educational enrollments, and stolen identities to financial institutions and student loan lenders in order to obtain Federal student aid funds to which they were not entitled. Sentences for the six individuals ranged from 30 months in prison to 1 year of probation, and a total of $434,000 in restitution was ordered. South Carolina - Ring Leader and Five Co-conspirators Sentenced - Six of fifteen individuals previously indicted for conspiracy to commit student loan fraud were sentenced for their role in the scheme. The ringleader allegedly obtained the personally identifiable information (PII) from the other participants as well as other individuals, and enrolled them in the online classes at multiple institutions. As a result of the alleged actions, more than $680,000 in Federal student aid funds was distributed to the scheme’s participants. Sentences for the six individuals ranged from 18 months in prison to 5 years of probation, and a total of $312,663 in restitution was ordered.

31. Recent Distance Education Fraud Headlines (cont.) Wisconsin - Ringleaders Sentenced for Scams at Multiple Schools - The individuals, previously charged in a 19-count indictment, were sentenced for their roles in a scheme to fraudulently obtain Federal student financial aid. Between 2003 and 2010, they allegedly used in excess of 50 persons’ PII in order to apply for and receive Federal student aid at a number of Minnesota schools. As a result of these alleged actions, the participants received more than $400,000 in Federal student aid to which they were not entitled. They were sentenced to 20 and 18 months incarceration, 3 years supervised release, and were ordered to pay $333,546.55 in restitution Arizona - 65 Individuals Charged in Financial Aid Fraud Ring - From 2006 through 2007, the ring leader recruited individuals to act as “straw students” and apply for federal financial aid, in the form of Stafford Loans and Pell Grants at Rio Salado Community College. A “fee” was charged to straw students in amounts ranging from $500 to $1,500. The ring leader accessed Rio Salado online classes, assuming the identity of the various straw students, in order to generate records of the straw students’ “participation” in online classes and cause Rio Salado to authorize financial aid payments to the straw students. The ring leader was sentenced to 41 months in prison, and ordered to pay $581,060 in restitution, and ordered to perform 100 hours of community service.

32. Why Report Fraud To the OIG? • Statutory and regulatory requirements. • Ethical responsibility. • To deter others from committing fraud and abuse. • To protect the integrity of the Title IV Programs. • To avoid being part of a fraud scheme. • To avoid administrative action. • To avoid civil penalties. • To avoid criminal prosecution. • To avoid incarceration.

33. 34 CFR § 668.16 Standards of Administrative Capability The Secretary considers an institution to have administrative capability if the institution: (f) Develops and applies an adequate system to identify and resolve discrepancies in the information that the institution receives from different sources with respect to a student’s application for financial aid under Title IV. (g) Refers to the Office of Inspector General…any credible information indicating that an applicant for Title IV, HEA program assistance may have engaged in fraud or other criminal misconduct in connection with his or her application. Schools must also refer to the OIG any third-party servicer who may have engaged in fraud, breach of fiduciary responsibility, or other illegal conduct involving the FSA Programs.

34. Criminal Liability • 18 U.S.C. § 2, Aiding and Abetting Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. • 18 U.S.C. § 4, Misprision of a Felony Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.

35. How You Can Help • Ensure that staff receive necessary Title IV training. • Review documents thoroughly. • Question documents / Verify authenticity. • Request additional information from the students or parents. • Compare information on different documents. • Contact the OIG if you suspect fraud. • Cooperate with the OIG in connection with an audit or investigation.

36. In the last 5 years, Title IV related ED-OIG cases have resulted in… Criminal Case Results • 442 individuals charged, found guilty, and sentenced for financial aid fraud • $46,872,935 in court ordered restitution • $219,838 in court ordered fines • $672,162 in voluntary repayments Civil Case Results • $96,007,461 in civil settlements • $148,334 in civil judgments • $3,834,310 in civil recoveries

37. Inspector General’s Hotline 1-800-MIS-USED http://www2.ed.gov/about/offices/list/oig/hotline.html

38. OIG Investigation Services Contact Sheet

39. QUESTIONS?