Prior-Prior Year Could Decrease Improper Payments

By Erin Timmons, Communications Staff 

The Department of Education (ED) has successfully cut back on waste, fraud, abuse and payment errors in the federal Pell Grant Program, according to a report released this week by ED's Office of Inspector General (OIG). However, there is a need for more oversight of students who inaccurately report their income, OIG said.

Each year, in order to remain in compliance with Executive Order 13520, "Reducing Improper Payments," ED is required to submit a report informing OIG of the efforts being taken to identify and reduce improper payments in the Pell Grant Program. 

Upon conducting an audit of the Fiscal Year (FY) 2012 and 2013 Pell Grant Program, OIG reported that though ED did a satisfactory job of reducing and recapturing improper payments, more work needed to be done in order to adequately address the issue of "inaccurate self-reported income," which OIG cited as "the most significant root cause of potential improper payments.” 

Incorrect amounts in the income field on the Free Application for Federal Student Aid (FAFSA) can result from students not utilizing the Internal Revenue Service's (IRS) Data Retrieval Tool (DRT) in order to help them complete their application or can occur because the student's file did not get selected for verification, the report said. While some students many actively choose not to use the IRS DRT, many students are unable to do so because they do not have their tax information at the time of filing the FAFSA. Regardless of how the incorrect income amount ended up on the FAFSA, Office of Management and Budget (OMB) guidance specifies that ED is responsible for creating a "corrective action plan" to reduce the amount of improper payments.

In order to determine whether ED has the necessary controls in place to lessen the risks of improper payments, the agency “should include the self-reported income component in a study of Pell program recipients who do not use the IRS DRT and who are not selected for verification,” OIG recommended.

NASFAA has long advocated for a move to using prior-prior year (PPY) income on the FAFSA. Doing so would allow students to file the FAFSA earlier than they do now and receive earlier notification of financial aid packages, but it would also make it easier to submit a FAFSA through expanded availability of the IRS DRT, and would therefore increase the accuracy of income reporting.

Timing is critical when submitting the FAFSA, and because the application depends heavily on the latest income information submitted via income tax returns, students may feel pressured to submit the form even before their returns are finalized so as not to miss out on a potentially limited pot of federal, state, and institutional financial aid funds.

A move to PPY would ensure that students had the necessary data to utilize the IRS DRT when completing the FAFSA, which could reduce the number of applications with inaccurate self-reported income, and in turn the number of improper Pell Grant payments.


Publication Date: 9/26/2014

William B | 9/26/2014 8:55:57 AM

In addition to using prior, prior year income, the Department of Education should consider adding additional IRS data available to cross over to the FAFSA. At our school, because we provide a significant amount of our own need-based aid, we verify 100% of need-based aid recipients. During the course of this review, we make a great deal of corrections to non selected students for federal verification that makes a significant reduction in Pell Grant eligibility.

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