OIG Foresees Continued Issues With ED’s Improper Payments, FSA Oversight

By Joelle Fredman, NASFAA Staff Reporter

The Department of Education (ED) may continue to struggle with improper payments and oversight and monitoring within the Office of Federal Student Aid (FSA) heading into the new year, according to ED’s Office of Inspector General (OIG). However, in its annual report highlighting management issues, OIG wrote that it will be reassessing whether these issues persist as ED works to improve its correction plans for improper payments, reduce verification issues, and more closely monitor loan servicers, among other efforts.    

According to the Improper Payments Elimination and Recovery Act (IPERA), federal agencies must review their programs susceptible to improper payments, publish performance reports on those programs, conduct risk assessments, reduce improper payments to less than 10%, and meet annual reduction targets, among other requirements. If an agency fails to meet one requirement, it is considered to have not complied with IPERA.

OIG has repeatedly found ED to be out of compliance with IPERA, prompting ED to change the way it estimates improper payments for the Pell Grant and Direct Loan programs, which it reported has “resulted in significantly lower improper payment estimates.” Specifically, ED is now looking at a larger random sample of more than 5,700 schools and data from compliance audits by external auditors, as opposed to a small sample of just a subset of schools selected for program reviews. 

“According to [ED], this methodology improves the accuracy of the improper payment estimates allowing for more precise root cause analyses to improve corrective actions and improve the effectiveness of correction action plans to mitigate identified root causes,” OIG wrote.

While OIG agreed in its report that the new method “should improve the accuracy and reliability of [ED’s] improper payment estimates,” it noted that it has not yet reviewed ED’s new process or findings.

In its last semiannual report to Congress, however, OIG flagged more than $712 million in “questioned costs from audit activity” and more than $84 million in “restitution payments from investigative activity” between April 1, 2016, and March 31, 2019. OIG wrote that “these examples demonstrate there may be other potential opportunities for [ED] to identify and prevent improper payments.”

OIG added that ED said it was working with the Office of Management and Budget (OMB) and the Treasury Department help reduce improper payments by creating legislation to allow the Internal Revenue Service (IRS) to disclose tax information directly to ED officials for the purpose of administering federal financial aid. 

“[ED] expects the exemption would allow for significant simplification of and improvement to the administration of Title IV programs, including reduction in improper payments,” OIG wrote. 

“This year marks a potential turning point in [ED’s] Improper Payments Management Challenge,” OIG wrote. “... However, the OIG has not assessed [ED’s] new estimation methodology or the accuracy and validity of [ED’s] new estimates. The OIG will review the accuracy and validity of these measurements as part of the [fiscal year] 2019 IPERA audit. Depending on whether the OIG finds issues with the new estimation methodology and estimates, this Management Challenge Area is subject to review and reconsideration.”

In addition to improper payments, OIG also wrote in its report that it has continued to find issues with FSA’s oversight of federal student aid programs, highlighting a range of problems, from FSA not ensuring that institutions addressed problematic satisfactory academic progress (SAP) findings, to the fact that FSA has not evaluated its FAFSA verification process, which has been flagged for selecting a large number of applications.

FSA responded to OIG that it has been working to address these and other issues, such as by creating “an improved model for verification selection and evaluation of data elements from the federal student aid application.”

Plus, in response to a Government Accountability Office (GAO) report earlier this year that identified the potential for fraud within income-driven repayment (IDR) plans, OIG noted that FSA had plans for a year-long pilot program to assess whether the program has been misused and subject to fraud, and will use the results to revamp its process for verifying family size and income for borrowers reporting zero income.

OIG added that in 2020, it would also be monitoring ED’s plan to overhaul the federal student loan system, dubbed the Next Generation (Next Gen) Financial Services Environment, which FSA told OIG was created “because it continually strives to improve oversight and monitoring of contractors.”

“While the Next Gen FSA initiative has significant potential to improve FSA’s ability to oversee and hold accountable its key contractors servicing federal student aid, the initiative is still in its early phases of implementation,” OIG wrote. “It will be important for FSA to ensure that this initiative is effectively implemented and that it follows through to hold its contractors accountable for effectively administering their responsibilities.”


Publication Date: 11/18/2019

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