Presentation on theme: "U.S. Department of Education Office of Inspector General Federal Program Administration: Office of Inspector General’s Role in Preventing Fraud, Waste."— Presentation transcript:
U.S. Department of Education Office of Inspector General Federal Program Administration: Office of Inspector General’s Role in Preventing Fraud, Waste and Abuse Presented by Geoff Wood - Assistant Special Agent in Charge Mid-Atlantic Region
OBJECTIVES Introduction to ED-OIG Audit Services Investigation Services What You Can Do To Help How to Make Referrals to ED/OIG Question and Answer
U.S. DEPARTMENT OF EDUCATION FACTS In FY 2012 the U.S. Department of Education (ED) provided approximately: $35 billion to states and school districts to improve K-12 schools and meet the special needs of students $2.5 billion to help strengthen teaching and learning in colleges and other postsecondary institutions $4.8 billion to support rehabilitation, adult education, research and development, statistics, and assessment $1.9 billion in contracts for goods and services necessary to carry out its mission. $35 billion in grants to college students $150 billion in federally guaranteed student loans
FEDERAL FUNDING TO PENNSYLVANIA ELEMENTARY AND SECONDARY PROGRAMS *Includes Recovery Act Allocations
“There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.” Benjamin Franklin
To prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Education Department programs and operations. Inspector General Act of 1978
A deliberate distortion of the truth in an attempt to obtain something of value. or Lying and cheating. Fraud 7
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. OIG MISSION STATEMENT
ORGANIZATIONAL CHART Part of the Department BUT… Independent
OIG Components Immediate Office/Counsel/Public Affairs Evaluation, Inspection and Management Services Information Technology Audits and Computer Crime Investigations Audit Services Investigation Services
AUDIT SERVICES 11 Performance Audits (Compliance and Efficiency) Program Specific Generated by Referrals from the Public, Program offices, Single Audit Report Findings, and Work Planning Single Audits (Non-Federal OMB Circular A-133) Covers the Fundamentals Accounting and Related Internal Controls Program Compliance and Related Internal Controls for Major Federal Programs ED-OIG’s Role in Single Audits: Quality Assurance Issues Audit Guides and Guidance Provides Training and Technical Assistance
12 AUDIT SERVICES Looking for evidence of adequate internal controls over: Accounting for and expending Federal funds Allowability of goods and services Participant eligibility Salary expenses Non-Salary expenses Electronic Data and Systems
13 Red Flags No written policies and procedures Lack of controls over computer systems and computer equipment Inadequate financial management systems Failure to maintain documentation AUDIT SERVICES
COMMON LEA FINDINGS Personnel Costs Not Allocable to the Grant Non-Personnel Costs Unnecessary (or Unreasonable) to Carry Out the Grant or Not for Program Purposes Unallowable Costs Resulting from Contracts with Missing Required Elements, Lack of Approval, or Expenditures that Exceeded the Contract Amount Poor Internal Controls Over Purchase Cards and Gift Cards Unsupported Adjusting Journal Entries Use of funds for unallowable purposes (personal use, embezzlement, overpaying for goods or services-kickbacks) Charging obligations to the wrong grant/contract 14
15 RECENT AUDIT EXAMPLES
MULTIPLE PROGRAM EXPENDITURE AUDIT OF THE SCHOOL DISTRICT OF PHILADELPHIA 16 Personnel Expenditures Not Allocable to the Grant - $2.9M in Unallowable and $123.7M in Unsupported Costs Supplanting with Federal Grant Funds - $7M in Unallowable and $1.3M in Unsupported Costs Journal Vouchers Processed - $6.3M in Unallowable and $11.9M in Unsupported Costs Non-Payroll Expenditures - $411K in Unallowable and $765K in Unsupported Costs Computers purchased - $8,300 in Unallowable and $12,000 in Unsupported Costs Food purchased for staff meetings - $5,000 in Unallowable and $5,300 in Unsupported Costs Field Trips to National Aquarium and NYC - $26,000 in Unallowable Costs
AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 AUDIT – MULTIPLE LEAs IN PA 17 Excess Interest Earned on ARRA Funds Inaccurate Job Creation and Retention Reporting Failure to Complete Semiannual Time and Effort Certifications Lack of Written Policies and Procedures for Multiple Fiscal Areas Weak Fiscal Controls
TITLE I EXPENDITURES AUDIT WILLIAM FLOYD UNION FREE SCHOOL DISTRICT (NY) 18 Title I Salary and Salary-related Expenditures - $4.6M in Unsupported Costs Questioned $39,810 of Teacher Retirement Benefits and Related Indirect Costs and $15,000 of Purchased Services Significant Internal Control Weaknesses: Lack of Internal Claims Auditor Review Improper Signatures on Purchase Orders Access to Finance Manager Accounting System
TITLES I & II NON-SALARY EXPENDITURES AUDIT WYANDANCH UNION FREE SCHOOL DISTRICT (NY) 19 Title I and Title II - Could Not Reconcile Expenditure Reports Totaling $6.6M Systemic Internal Control Weaknesses Lack of Separation of Duties Obsolete Policy Manual Inadequate Oversight by Board
AFTER SCHOOL PROGRAMS AUDIT NEW HAVEN SCHOOL DISTRICT (CT) 20 Title I Funds Spent on Ineligible Summer Programs - $3.78M Supplanted Funds from Non-Federal Sources.
OIG INVESTIGATION SERVICES Inspector General Act of 1978 Gives the Authority to: Conduct Criminal Investigations Execute Arrest and Search Warrants Serve Subpoenas Grand Jury Administrative Statutory and Regulatory Access to Records
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, 22
SOURCES OF OIG INVESTIGATIONS U.S. Attorney’s or District Attorney’s Defense Attorneys OIG Audits and Investigations OIG Hotline Complaints ED Program Offices School Officials Other Law Enforcement Entities Other Government Agencies Private Citizens
SUBJECTS OF INVESTIGATIONS Grantees State Agency Employees School Officials Superintendents Board Members Program Coordinators Business Office Officials Teachers Vendors ED Employees
Falsifying grant applications or reports Creating fictitious records Forgery Double billing Fees for non-existent consulting services Issuing checks made payable to friends and relatives Purchasing equipment and supplies for personal reasons Using grantee issued credit cards for personal use Accepting kickbacks from vendors Falsifying research data Using funds for unintended purposes Inflating enrollment and attendance records Bribery Extortion Common Fraud Schemes
FRAUD INDICATORS One person in control No separation of duties No prior audits Repeat audit findings High turnover of personnel Unexplained entries in records Lack of internal controls/ignoring controls Unusually large amounts of payments for cash Inadequate or missing documentation Inability to answer or respond to basic questions Inventories and financial records not reconciled 26 Altered records Non-serial number transactions Unauthorized transactions Related Party Transaction
ADMINISTRATIVE ACTIONS Referral to ED Program Office (OESE, OII, etc…) Resulting in: Audit Resolution by Program Office Designation as a high risk grantee by the Department Multi-year Compliance Agreement or Memorandum of Understanding between the Department and the SEA or LEA which requires they enter into corrective action plans to reach full compliance with all applicable program requirements in order to continue to receive Federal education funds Coordination with State Department of Education Coordination with Local School District 28
CIVIL PENALTIES Civil False Claims Act - 31 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 29
CRIMINAL PENALTIES Criminal Statutes Used in Connection with OIG cases: 18 USC § CONSPIRACY 18 USC § FALSE STATEMENTS 18 USC § MAIL FRAUD 18 USC § WIRE FRAUD 18 USC § BANK FRAUD 18 USC § THEFT OF GOVERNMENT FUNDS 18 USC § THEFT CONCERNING FEDERAL PROGRAMS 18 USC § COMPUTER FRAUD / EXCEEDING ACCESS
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. 31
RECENT INVESTIGATIVE RESULTS 32
33 Former Executive Director of PA’s Northeastern Intermediate Unit (NEIU) Sentenced Rosetti fraudulently, improperly, and unlawfully converted funds and property of the NEIU for his personal benefit and for the personal benefit of his family by: Ordering NEIU employees to perform work on his residence Ordering NEIU employees to assist in the planning/preparation of his family events Creating false travel vouchers Directing NEIU employees to create false travel vouchers and give the funds to Rosetti Fraudulently reported his work hours by not claiming vacation, sick and personal days, resulting in a large cash payout at the time of his retirement On March 5, 2013, Fred Rosetti was sentenced in the Middle District of Pennsylvania to 33 months incarceration followed by 2 years supervised release, and ordered to pay restitution of $137, and a fine of $30,200. As a result of the investigation, Rosetti’s $127,000 per year pension was also revoked by the Pennsylvania Public School Employees' Retirement System (Federal Program Fraud - 18 USC 666).
34 On March 12, 2013, Ashkir Ali, owner of WAISS Network Technologies, was arrested in Ohio by ED/OIG agents. An indictment from the U.S. District Court, Southern District of Ohio charged Ali with two counts of making false statements and two counts of aggravated identity theft. Ali allegedly defrauded the U.S. Department of Education’s Supplemental Education Services program by billing the program for tutoring sessions that were never provided. Ali allegedly submitted forms with forged tutor and parent signatures and submitted written claims for payments which falsely represented the number of tutoring hours WAISS provided. SES Tutoring Company Owner Indicted and Arrested
35 Former Charter School Officials Sentenced On July 13, 2012, Hugh Clark, former Chairman of the Board for New Media Technology Charter School (NMTCS), and Ina Walker, former CEO at NMTCS, were sentenced in U.S. District Court for the Eastern District of Pennsylvania. Clark and Walker had previously pled guilty to Wire Fraud, Conspiracy, Theft from a Federally Funded Program, Bank Fraud, and Aiding and Abetting. The two admitted to stealing $522,000 of NMTCS funds for the benefit of a non-profit private school they controlled, and for their personal business ventures and personal expenses. Clark and Walker also admitted to defrauding the Wilmington Savings Fund Society of $357,500. Clark was sentenced to 24 months in prison and five years probation. Walker was sentenced to 6 months in prison, five years probation, and 100 hrs community service. The two were jointly ordered to pay $861,000 in restitution.
36 On July 24, 2012, a federal grand jury in the Eastern District of Pennsylvania indicted Dr. June Brown, former CEO and founder of four charter schools in the Philadelphia area, charging her with fifty counts of wire fraud, two counts of obstruction of justice, one count of witness tampering, and one count of conspiracy. The grand jury also indicted 3 charter school CEO’s and a former business manager, by charging them with conspiracy to obstruct justice and obstruction of justice in a federal investigation. Brown allegedly utilized two management companies she controlled to defraud Agora Cyber Charter School and Planet Abacus Charter School, two charter schools that she founded. Brown falsified a contract between one of the companies and the schools that resulted in $6.3 million in fraudulent payments. Brown and her co-conspirators falsified documents such as board meeting minutes, board resolutions and financial records. The investigation revealed that Brown used her influence, her familiarity of the school system, its policies and regulations in order to set up these private companies which were designed to conceal her role, payments to herself, and to her companies and her co-conspirators. Charter School Founder and Administrators Charged in a Sixty-two Count Indictment
37 Western Pennsylvania Man Sentenced for Program Fraud On January 16, 2013, Ralph D. Imbrogno was sentenced in Federal District Court for the Western District of Pennsylvania to five months incarceration, five months of home detention, three years of supervised release, and ordered to pay $94,439 in restitution. Imbrogno pled guilty in August 2012, to one count of Program Fraud. The investigation determined that Imbrogno, while serving as the Clairton City Manager, fraudulently steered painting contracts for the West Mifflin Area School District to his son’s painting business.
38 Former Pennsylvania School District Superintendent Pleads Guilty to Program Fraud On May 9, 2011, Dr. Dennis Bruno, former Superintendent of the Glendale School District, Flinton, PA, pled guilty to a one count Information to Fraud and Bribery by Recipients of Federal Funds Bruno misapplied $49,600 from the Fund for the Improvement of Education (FIE) grant. Bruno stipulated and agreed in the plea agreement that he conspired with others to obtain E-Rate Program funding that was misapplied in the amount of $414,421.
Luzerne County (PA) Public Corruption Investigation 9 Individuals Sentenced This case was initiated based on information developed in a public corruption investigation in Luzerne County, PA conducted by the FBI and IRS. During corruption investigation of public officials in Luzerne County, allegations were received regarding a “pay to play” scheme requiring Luzerne County teachers and contractors to provide money or other things of value to Board of Education members in order to be hired or obtain a public contract. Ross Scarantino, Pittston Area School District Superintendent, accepted a kickback of $5,000 cash as a reward for support he provided to a contractor who obtained a contract with the district. Scarantino was sentenced to 13 months in federal prison two years supervised release, and a $15,000 fine. Brian Dunn, a member of the Board of Education for the Wilkes-Barre Area School District, accepted a kickback of $5,000 cash as a reward for support he provided for the hiring of a prospective teacher. Dunn was sentenced to 18 months' imprisonment, 2 years supervised release, and a $1,000 fine.
2009 Luzerne County (PA) Public Corruption (cont.) 40 The kickback paid to Dunn was orchestrated by Frank Pizzella, Jr, who was friends with the family of the prospective teacher who received Dunn’s vote of influence on the Board of Education. At the time of the payment, Pizzella was just resident of Luzerne County, but at the time of his arrest he was himself a member of the Board of Education for the Wilkes-Barre Area School District. Pizzella, Jr. was sentenced to two years probation, five months home confinement, and a $10,000 fine. James Height, President of the Board of Education for the Wilkes-Barre Area School District, accepted a cash gratuity payment of $2,000 for assisting a local business in obtaining a contract with the Wilkes-Barre Area Career and Technical School. Height was sentenced to six months imprisonment, four months house arrest, and a $2,000 fine. Joseph Oliveri, a Pittston Area School Board member and Luzerne County Sheriff’s Deputy, accepted a $1,500 kickback for his assistance in assisting a local business in obtaining a contract with the Pittston Area School District. Oliveri was sentenced to 12 months and 1 day imprisonment, two years supervised release, and a $3,000 fine.
2009 Luzerne County (PA) Public Corruption (cont.) 41 Jeffrey Piazza, a Wilkes-Barre Area Career and Technical School official, conspired with a vendor to significantly inflate the cost of equipment to include approximately $15,000 in kickbacks paid to Piazza. Piazza was sentenced to six months imprisonment and two years supervised release, to include 75 hours of community service. Craig Stirling, Director of Technology at Valley Forge Christian College (VFCC), Phoenixville, PA, conspired with a vendor to significantly inflate the cost of technology-related equipment to include over $27,000 in kickbacks paid to Stirling. Stirling was sentenced to six months home confinement, two years probation, and was ordered to pay $27,202 restitution as well as a $100 special assessment. Richard Emanski, owner of King Glass & Paint Company, provided and installed free carpeting in the residence of a member of the Wilkes-Barre Area School District Board of Education as a kickback for support provided by the Board Member for a contract with Emanski’s business. Emanski was sentenced to five months imprisonment, two years supervised release, and a $10,000 fine. Michael J. Pasonick, owner of an engineering firm, paid a Board of Education member a bribe of more than $1,000 to influence a vote to award Pasonick’s firm construction contracts with the district. Pasoncik was sentenced to one year in prison and a $250,000 fine.
HOW YOU CAN HELP Ensure that staff receive necessary training Review documents thoroughly Question documents/Verify authenticity Request additional information from the vendors or administration Compare information on different documents Cooperate with the OIG in connection with an audit or investigation Contact the ED-OIG
IN THE LAST 5 YEARS, TITLE I RELATED ED-OIG CASES HAVE RESULTED IN… Criminal Results 133 individuals charged, found guilty, and sentenced for fraud related to Title 1 funds $14,925,858 in court ordered restitution $754,761 in court ordered fines $1,512,268 in voluntary repayments Civil Results $9,327,965 in civil settlements $1,575,353 in civil judgments $325,463 in civil recoveries 45 Administrative Results $5,459,008 in recoveries $541,801 in savings