Fraud Awareness and OIG Overview

U.S. Department of Education Office of Inspector GeneralPREVENTING FSA FRAUD

Chance JonesSpecial AgentNashville Field Office

1OIG MISSION STATEMENTTo promote the efficiency, effectiveness, and integrity of the Department's programs and operations, we conduct independent and objective audits, investigations, inspections, and other activities.

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U.S. Department Of Education FactsED disbursed approximately $141 billion in Title IV aid for the 2012-13 award year Over 22 million students had their federal financial aid applications processed Over 15 millions students submitted their federal financial aid applications onlineDuring this last year approximately 15 million students were delivered Federal Student Aid funds through more than 6,200 colleges or career schoolsMore than $80 billion in ED funding was disseminated amongst more than 142 different educational programs4

There is no kind of dishonesty into which otherwise good people more easily and frequently fall than that of defrauding the government.Benjamin FranklinFRAUD DEFINEDAn intentional distortion of the truth in an attempt to obtain something of value. Does not have to result in monetary loss.Laymans terms: Lying, cheating, or stealing.

6We speak about fraud. What is fraud? Audit Services Investigation Services Evaluation, Inspection and Management Services Information Technology Audits and Computer Crime Investigations

OIG Components

77Briefly describe each component.IT/Computer CrimesInvestigate intrusions into Education networkCheck/monitor network for vulnerabilitiesComputer forensicsProvide support to investigative services staffData mine

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ActorsToolsState SponsoredOrganized Cyber Crime International OrganizationsProfessional HackersSpammersInside ThreatDisgruntled Employees.BotnetKeyloggerTargeted VirusesThe usual Internet attack toolsPhishing, Spam, etc

The Threat

Examples of What to ReportCompromise of Systems PrivilegesCompromise of Information Protected by Law.Unauthorized Access of IT Systems or Data.Exceeding Authorized Access.Denial of Service of Major IT Resources.Malicious Destruction or Modification of data/information.Is Your System a Victim?Immediate Reporting is Necessary!Have the facts.Why you think there is an issue.Date/Time of the IncidentSystem Information.LocationType and Purpose of the System.Point of Contact.Actions Already Taken.

Common Identity Theft Practices Obtain or take over financial accountsTake out loans for large purchasesOpen new lines of creditSign lease agreementsEstablish services with utility companiesWrite fraudulent checksPurchase goods and services on the InternetAvoiding Identity TheftShred sensitive informationOnly carry what you usePhoto copy all cards in your walletSelect hard to guess PINs and passwordsDont leave mail sitting in an unprotected boxDont give out private information over the phoneOrder your credit reportsUse caution when providing ANY sensitive informationProtecting Others From Identity TheftProperly handle documents Shred sensitive informationUse key identifiers instead of the SSN Password protect sensitive informationAudit accessReview access privilegesVerify who you are talking to in person or on the phone.Clean desk policyFraud IndicatorsOne person in control No separation of dutiesLack of internal controls/ignoring controls No prior audits High turnover of personnel Unexplained entries in records Unusually large amounts of payments for cashInadequate or missing documentation Altered records Inventories and financial records not reconciled Unauthorized transactionsRelated Party TransactionRepeated audit findings15

15These are the conditions that contribute to fraud. In many situations, fraud is a crime of opportunity. The presence of anyone of these may not mean there is a problem. However, if more than two are presentthe hair on the back of your neck rises and something doesnt feel right. There might be a problem.OpportunityMotivationRationalizationWeak controlsLittle or no oversightLax rules

DebtAddictionsStatusGreedEveryone does it.I was only borrowing the money.I was underpaid and deserve it.

FraudTriangleRed Flags to InvestigatorsVices such as substance abuse and gambling.Extravagant purchases or lifestyle.Lack of documents (the big flood destroyed)Common Addresses (mailing, email, and IP)Pin number and password information the same.Personal information that does not fit the norm.Bank information that is the same.

Sources of AllegationsOIG HotlineED Program OfficesSchool Employees and OfficialsGuarantee AgenciesCitizens and StudentsCompeting Vendors/SchoolsOther Federal AgenciesU.S. Attorneys OfficesOther ED OIG InvestigationsFederal Bureau of InvestigationState and Local Education Agencies

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Examples of Title IV Fraud Schemes

FAFSA fraud- enrollment Falsification of entrance exams Falsification of GEDs/HS DiplomasFalsification of attendanceFalsification of gradesFailure to make refundsObstruction of a federal audit or program review

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Ghost students Leasing of eligibility Loan theft/ forgeries Fraud/Theft by School Employees Default rate fraud 90/10 rule Financial statement falsification ATB fraud Falsified last date of attendance

Who Commits FraudInvolving Education Funds?School Employees, Officials, Owners, Financial Managers, and InstructorsLenders and lender servicersGuarantee AgenciesAward RecipientsGrantees and ContractorsED EmployeesOthers20

20Common Criminal Statutes20 U.S.C. 1097 FSA Fraud18 U.S.C. 287, False Claims18 U.S.C. 371, Conspiracy18 U.S.C. 641, Theft of Public Funds18 U.S.C. 666, Theft/Bribery18 U.S.C. 1001, False Statement18 U.S.C. 1341, Mail Fraud18 U.S.C. 1343, Wire Fraud

21How You Can HelpEnsure that staff receive necessary trainingReview documents thoroughlyQuestion documents/Verify authenticityRequest additional information from the vendors or administrationCompare information on different documentsContact ED-OIG2222Dont Try To Investigate Suspicious Activity Yourself! You may have the missing piece of the puzzle we need!

OIG Investigation ResultsConspiracy and Aggravated Identity Theft CaseBrian Salyer was sentenced to 45 months incarnation and 3 years supervised release for one count of aggravated identity theft and 1 count of conspiracy to commit fraud. Miranda Salyer was sentenced to 4 months incarceration and 3 years supervised release for 1 count of conspiracy to commit fraud.The Salyers submitted 15 fraudulent student loan applications, for which, they received approximately $173,668. Additionally, the Salyers forged Miranda Salyers grandfathers signature on several promissory notes. The court ordered the Salyers to each pay $103,227 in restitution, for a total of $206,454.

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25 OIG Investigation ResultsFalsified ATB and Failure to Make Refund CaseThe three former owners of the Moler Beauty College (MBC), located in Louisiana, were sentenced and fined for conspiracy to commit student financial aid fraud. Our investigation disclosed that the three owners, along with a financial aid administrator and a contracted Ability-To-Benefit (ATB) tester, engaged in a scheme to fraudulently obtain Title IV funds by falsifying student and school records. MBC officials also engaged in a scheme to prevent the return of Title IV funds to the Department. The owners received prison sentences ranging from 12 to 27 months, and were ordered to jointly pay over $164,000 in restitution to the Department.

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OIG Investigation ResultsFormer assistant registrar at Southern University sentenced. Cleo Carroll, former Assistant Registrar at Southern University (SU), Baton Rouge, LA was sentenced to 5 months in a halfway house, 5 months home confinement, 5 years probation, a $3,000 fine and a $100 special assessment fee for his role in the grade-buying scheme at SU. Carroll pled guilty to bribery concerning programs receiving federal funds. Carroll, a 30-year SU employee, made fraudulent grade changes and additions. Carroll manipulated SUs student records system to alter academic transcripts and manually created transcripts using blank transcript paper in exchange for compensation.

OIG Investigation ResultsFinancial Aid Director Sentenced. Magda Jules, former financial aid director of Long Technical College plead guilty to financial aid fraud. She was sentenced to 4 month incarceration, 36 months probation, and ordered to pay $39,641 in restitution. Jules increased student loan amounts, intercepted the student loan checks, forged student signatures and negotiated the student loan checks.

OIG Investigation ResultsFormer collection agency owner sentenced to prison. Robert Hazlett, the former CEO of a collection agency, Valley Acceptance Corporation, was sentenced to 8 months in prison, to be followed by 36 months of supervised release, and ordered to pay restitution of $744,376. Hazlett conspired with four of his employees to submit 537 applications for consolidated education loans that contained fraudulent information and misrepresentations in order to generate over $1 million in commissions for the company.

OIG Investigation ResultsEmbezzlement Case

The former financial aid director of the Troy School of Beauty Culture (TSB), located in New York, was sentenced to 18 months in jail and two years of supervised release for embezzlement. Our investigation disclosed that the former director embezzled over $410,000 in Pell Grant funds over a four-year period. The former director used the identities of at least 25 individuals, including a co-worker, to substantiate draw downs of funds into the TSB Pell Grant account. The former director then wrote checks to cash and converted them for personal use.

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OIG Investigation ResultsCo-conspirator pled guilty to conspiracy. Jason Justice, supplied the identification information for at least fourteen inmates incarcerated at the Pulaski Correctional Unit in Dublin, VA to his mother and his sister. They fraudulently enrolled the inmates in Internet distance learning programs at Ivy Tech State College and Owen Community College to obtain student aid refund checks. They also used the information to fabricate and file false income tax refunds.

OIG Investigation Results Former DC Public School Teacher Pleads Guilty to Student Loan Fraud, Social Security Fraud, and False Statements. Deloris LaVelle Ennis plead guilty to Student Loan Fraud, Social Security Fraud, and False Statements in a Bankruptcy Proceeding. ENNIS fraudulently obtained multiple Social Security Numbers and used those identifiers to obtain federally insured student loans to attend Bowie State University. Ennis fraudulently obtained over $94,000 in federally insured student loans. Ennis also filed for bankruptcy using a fraudulently obtained Social Security Number.

OIG Investigation Results Former Prince William County, VA and Prince Georges County, MD Special Education Teacher sentenced for Identity Theft and Counterfeiting. Anthony G. Ward, was sentenced to thirty years incarceration with all but twenty-seven months suspended and five years supervised probation on one count of Identity Theft and two counts of Counterfeiting. Ward fraudulently received and attempted to cash checks totaling approximately $20,591 in federal financial aid by fraudulently using the victims personal identifiers on FAFSAs.

Who is Responsible for Reporting Fraud?Everyone who deals with DoED funding has a responsibility to help control fraud. 3434Why Report Fraud?OMB Guidance on ARRA Accountability and Reporting Requirements:

Mandatory Reporting to the Inspectors General Agencies must include in all grants the requirement that each grantee or sub-grantee awarded funds made available under the Recovery Act shall promptly refer to an appropriate inspector general any credible evidence that a principal, employee, agent, contractor, sub-grantee, subcontractor, or other person has submitted a false claim under the False Claims Act or has committed a criminal or civil violation of laws pertaining to fraud, conflict of interest, bribery, gratuity, or similar misconduct involving those funds.

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35Why Report Fraud?Ethical responsibilityTo deter others from committing fraud and abuseTo protect the integrity of the Federal, State and Local programsTo avoid being part of the fraudulent/criminal activities36

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Link to OIGs Distance Education Fraud Ring Investigative Program Advisory Report (IPAR)http://www2.ed.gov/about/offices/list/oig/invtreports/l42l0001.pdf

Information for Financial Aid Professionals (IFAP) website:http://www.ifap.ed.gov/ifap/index.jsp Dear Colleague Letter GEN-11-17:http://www.ifap.ed.gov/dpcletters/GEN1117.html

IPAR/Dear Colleague LetterOn September 26, 2011, the Departments IG issued a report about fraud rings operating on distance education programs offered by institutions participating in the Federal student aid programs. The IGs report identified an increasing number of cases involving large, loosely affiliated groups of individuals (fraud rings) who conspire to defraud title IV programs through distance education programs. These fraud rings generally target institutions with low tuition in the context of distance education programs and involve a ringleader who:

IPAR/Dear Colleague LetterObtains identifying information from straw students individuals who willingly provide the information.Completes multiple financial aid applications using the information collected.Applies for admission under the institutions open admissions program, where little or no third-party documentation is required. Participates in the amount of on-line interaction necessary to establish participation in the academic program and secure disbursements under an institutions procedures.

IPAR/Dear Colleague LetterDetecting fraud before funds have been disbursed is the best way to combat this crime. We therefore seek the help of institutions and advise that you take the following additional actions to identify and prevent the kind of student aid fraud identified in the IGs report:Implement automated protocols that monitor information in your student information data system to identify instances where a number of students IPAR/Dear Colleague LetterUse the same Internet Protocol (IP) 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.

IPAR/Dear Colleague LetterModify your disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive. Institutions 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 (e.g., until an exam has been given, completed, and graded or a paper has been submitted). Make more frequent disbursements of Title IV funds so that not all of the payment periods award is disbursed at the beginning of the period.

Management Information ReportSchool-based student aid fraud ring activity is a rapidly growing problem. The population of school-based recipients considered as potentially participating in this activity has increased 82 percent from award year (A Y) 2009 (18, 719 students) to A Y 2012 (34,007 students). Over 85,000 recipients may have participated in this type of student aid fraud ring activity and received over $874 million in Federal student financial aid during this period.It is estimated that $187 million of this $874 million in Title IV funds are probable fraud loss. 43QUESTIONS?

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SA Chance JonesNashville Field OfficeCell 202-345-0522Chance.Jones@ed.gov44