Lawmakers investigate charges of waste, fraud at Education

Education Secretary Richard W. Riley defended his department against charges of waste, fraud and abuse before a House committee Wednesday.

Riley answered questions from members of the Education and Workforce Committee about the agency's financial mismanagement and allegations of fraud involving Education Department employees.

The Education Department hasn't received a clean financial audit since 1997.

"The bottom line is that this agency is not financially accountable," said Rep. Pete Hoekstra, R-Mich., chairman of the Oversight and Investigations Subcommittee. "It failed the most basic test of fiscal accountability when it did not pass an audit for either fiscal year 1999 or fiscal year 1998. That lack of financial accountability has repercussions that are felt by America's children and taxpayers."

Riley said the department is making progress on putting its finances in order. The agency purchased a state of the art financial system and is trying to get it up and running as soon as possible. It has also hired new financial managers and enlisted the support of private sector accounting firms.

Riley said his department has closed out 118 of the 139 recommendations included in financial audits dating back to 1995. He said he expects all the recommendations to be closed out next year.

Problems with financial management have been compounded by cases involving fraud in the agency. In March, an agency employee embezzled nearly $2 million in Impact Aid grant money intended for two South Dakota school districts and used the money to purchase cars and property. The Impact Aid program gives money to school districts serving federally connected children, including children living on military bases or Indian reservations.

Riley said the department has seized the property and funds, and that both districts received all of their grant money.

"Seen in the context of the 500,000 payments that we process each year, these payments were clearly an aberration, but one that we have sought to prevent in the future through additional administrative safeguards," Riley said.

From January 1997 to December 1999, contractors and Education Department employees conspiring together stole more than $300,000 worth of electronic equipment and collected more than $600,000 in false overtime pay. The Justice Department is still investigating the case.

"In response to this unacceptable abuse of trust, we have moved aggressively to seize stolen property and expect to recover every penny by the time the investigation and prosecution is completed," said Riley.

A report prepared by the House committee cited examples of improper payments made by the agency. These included erroneous financial aid forms printed in September 1999 that were recalled-costing the agency more than $700,000-and duplicate payments to grantees and contractors during the past year totaling more than $150 million.

Committee members also criticized management of Education's student financial aid programs, noting that the programs consistently made the General Accounting Office's "high-risk" list of programs most susceptible to waste, fraud and abuse.

Riley said Education has strengthened the management of the student aid programs by turning the Office of Student Financial Aid programs into a performance-based organization. The office is currently trying to integrate its computer systems into a more user-friendly, cost-effective system, he said.

According to a General Accounting Office report (GAO/AIMD-00-261R) released in September, the Education Department did not report improper payments, even though audit reports indicated they had made erroneous payments.

The House passed a bill in June authorizing the Comptroller General to conduct an audit of certain accounts at Education. H.R. 4079, which Hoekstra introduced in March, is now in the Senate.