Education Secretary Richard W. Riley and his top deputies don't like it one bit, but the word "fraud" keeps popping up in connection with the department.
Riley tried to make a case to a House committee last week that better management during his seven years as secretary has saved billions--$18 billion, to be exact--while two outbreaks of fraud have siphoned $3 million, funds he vowed would be fully recovered, plus damages. Department employees have been implicated in both episodes.
"I do not and will not tolerate fraud of any kind," Riley said sternly during the hearing of the House Education and the Workforce Committee.
Rep. Peter Hoekstra (R-Mich.), chairman of the oversight and investigations subcommittee that has probed the department's financial management, announced that its inspector general's office has briefed him about two other suspected frauds. Hoekstra declined to disclose details about the ongoing criminal investigations.
Court records lay out allegations of one suspected fraud in the student loan program. Another centers on the department's mailroom, Rep. Charles Whitlow Norwood Jr. (R-Ga.) said later in the hearing, displaying none of Hoekstra's caution.
In the student loan case, a private contractor hired to collect defaulted student loans agreed this month to pay $6.4 million to settle a civil lawsuit brought by an independent auditor and two whistleblowers who once worked at the company.
The lawsuit, filed in federal court here in early 1997, alleged that CSC Accounts Management Inc. knowingly overbilled the Education Department for commissions and bonuses for consolidating a borrower's defaulted student loans into a single note.
In reaching a settlement, the Houston-based subsidiary of Computer Sciences Corp. denied the allegations and admits no wrongdoing. But a criminal investigation of former CSC employees is still possible under the settlement's terms.
Harvey Bernstein, a CSC lawyer, says he is unaware of any criminal inquiry involving any of the corporate parties to the $6.4 million settlement.
For their trouble, the whistleblowers are sharing a cut of the cash settlement, $900,000, which does not include an additional amount that their Washington lawyer, John Richards, will be able to recoup for legal fees.
Among federal programs, the student loan system has been highly vulnerable to fraud over the years. Unlike in the instances of stolen electronic equipment and embezzled grants uncovered at the department this year, no federal employees have been accused of participating in what the collection agency was doing.
The lawsuit alleges the agency's employees helped deadbeats appear--at least on paper--able to repay a consolidated loan even though they didn't meet the department's requirements for demonstrated creditworthiness. Personal financial statements were not collected, and initial payments were too small to establish a meaningful track record.
The result in some cases: The government got stuck with a consolidated loan that was just as uncollectable as the original loans--and 18.5 percent larger once the contractor's commission had been tacked on.
CSC hasn't been collecting student loans since the department declined to renew its contract in 1997. Currently, 17 private collection agencies are engaged in similar work.
Gary Hopkins, director of collections for the Office of Student Financial Assistance, said new procedures have been in place since 1997 to ensure that collection agencies comply with department rules. A computer program, he says, now scans every consolidated loan to make sure new, tougher credit standards have been met.
WEB WATCH: High school seniors and parents busy picking out colleges can now turn to a new Education Department Web site (www.ope.ed.gov/security) for the latest campus crime statistices. The 6,700 colleges and trade schools that take federal money have to report on such offenses as hate crimes, murder and car theft.
Although the Web site is searchable, it may be hard to figure out what the numbers say about campus security. Unlike FBI reports, these don't offer crime rates per 1,000 students, making comparisons among schools a bit rough. And arrest figures are only for guns, drugs and booze.