Good Morning. Thank you all for coming here today to hear about financial mismanagement at the Department of Education.

This Subcommittee has held two prior hearings on this topic within the past ten months, and I chaired a recent Budget Committee task force hearing on the same issue. Those hearings talked about the failed audit reports that the Education Department received in Fiscal Year 1999 and Fiscal Year 1998.

Failed audits and weak financial control systems indicate that an agency is vulnerable to waste, fraud and abuse. In other words, real money is on the line. In this case, we’re talking about Federal education dollars.

To illustrate what happens when the rubber meets the road, I want to talk about a couple of school districts out in South Dakota that receive federal Impact Aid grants from the Department of Education. As many of you know, Impact Aid is a grant program that sends money to school districts serving federally connected children, such as those living on military installations or Indian reservations.

Well, this past April, these two South Dakota school districts did not receive money that was supposed to be sent to them by the Department of Education. The school districts did not notify the Department right away, because Impact Aid program participants are used to waiting around every year for delayed payments from the Education Department. Sometimes they have to borrow money from a local bank -- and pay interest on the loan -- while waiting for the Education Department to get their money out the door.

So where was the $1.9 million in grant money due to these school districts? According to a Justice Department complaint filed in July, the $1.9 million was electronically wired into bank accounts set up by con men. The thieves submitted a fraudulent direct deposit form to the Education Department on behalf of one of the South Dakota school districts. They substituted a different bank account number for the correct one used by the school district.

Using aliases instead of their real names, the thieves then purchased a 2000 Cadillac Escalade with a $46,900 cashier’s check, and a 2000 Lincoln Navigator with a $50,000 cashier’s check. Both checks drew on the account to which the Impact Aid funds had been wired.

Meanwhile, another individual perpetrated the identical direct deposit wire fraud scheme, stealing Impact Aid funds intended for a different South Dakota school district. In this case, some of the stolen money was used by the thief’s son to purchase real property in the State of Maryland worth $135,000.

The Justice Department continues to investigate another case, in which a theft ring bilked the Department out of more than $300,000 worth of electronic equipment and more than $600,000 in false overtime pay. According to those who have already pled guilty in court, an Education Department employee coordinated the theft ring. She had a contract employee deliver items to her own home and those of her relatives, including a sixty-one inch television set and five $8,000 computers. She also had him run errands for her on the government’s time, like picking up her granddaughter from school and driving to Baltimore to get her crab cakes to eat for lunch in Washington. As the investigation moves forward, several other Education Department employees remain suspended without pay.

There is at least one other major theft of Education Department funds currently being alleged that I will not go into, since none of the facts in that case have yet been made public, and this Subcommittee will not do anything to jeopardize an ongoing investigation.

We know that large-scale criminal activity has plagued the agency’s student financial aid programs for years, causing the General Accounting Office to put these programs each year on its "High Risk" list of federal programs most subject to waste, fraud and abuse. The Inspector General estimated that improper Pell grant payments amounted to $177 million in one recent year alone.

It is not only criminal activity that afflicts this agency. There is general incompetence. The Department hired a contractor that sent an award notification letter to 39 students in February, informing each of them that they had won a Jacob Javits graduate fellowship award worth up to about $100,000. The only problem is that these students had not actually won the awards. They had been selected as alternates, not winners. So the Department called the students back and told them they had not really won the $100,000 fellowship after all.

About ten million students each year fill out federal financial aid forms in order to apply for higher education assistance. Last year, the Department printed three million of these financial aid forms containing errors. A university administrator found the mistakes. The forms had to be destroyed. The cost of the error: $700,000.

We know the Department of Education is still not producing auditable books. In fact, they seem to be running in place. None of the material weaknesses cited by auditors in the Fiscal Year 1998 audit report were corrected during Fiscal Year 1999. We are now approaching the end of Fiscal Year 2000. The audit has just begun, and the results are not due until March, but we know that the Department still does not have an appropriate accounting system in place, and does not expect to have one in place until sometime next year. Without a good accounting system, experts have testified, the odds that the Department can get a clean audit are slim.

We know that the Department has made more than $150 million in duplicate payments to grantees during the current fiscal year alone.

We know that the General Accounting Office published a report last month concluding that the Department did not maintain auditable records regarding the transactions it made into and out of a grantback account that at one point contained almost $700 million dollars, less than five percent of which belonged in the account in the first place.

And we know there are new concerns being raised about more areas of vulnerability at this agency.

This past February, The Education Department’s Inspector General released a report concluding that the agency is not in compliance with the Computer Security Act, and that its failure to implement appropriate security training and procedures constitutes a "significant threat to the security of Education’s information technology systems and the data they process." I want to point out that this data includes the student loan information of tens of millions of borrowers.

Another Inspector General report, which was just released, finds that the Education Department has still not complied with a 1998 Presidential directive on critical infrastructure protection that requires agencies to develop a plan for protecting their critical, cyber-based infrastructures by November 1998 and to implement those plans by May 2000. But the IG report says the Department’s plan is inadequate. It also has not been fully implemented. It calls for a Department-wide vulnerability assessment of critical assets that was never conducted.

I don’t know what, if anything, the White House is planning to do in response. But I know that this Subcommittee is determined not to let an agency off the hook that is the steward for a $40 billion budget of federal education dollars and the administrator of federal student loan programs in which there is currently about $175 billion in outstanding debt to be monitored and collected.

I want to get a sense today of what further waste, fraud and abuse we might expect to see involving the Department of Education. And how we can try to prevent it from happening.

Before we begin, I want to point out that the Justice Department was invited to participate in this hearing. They declined to testify, but made it very clear in a letter to the Subcommittee that we are free to question the Inspector General of the Department of Education about, "public aspects" of these investigations, "such as the charging documents and guilty pleas that have been publicly filed to date." I am disappointed that the Justice Department did not appear today to comment itself on these public filings. But I assume that the Inspector General will comply with the Justice Department letter and give her full cooperation to the Subcommittee in discussing these public documents.