[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
IMPROPER PAYMENTS IN THE FEDERAL GOVERNMENT: STUDENT AID
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JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON
GOVERNMENT OPERATIONS
AND THE
SUBCOMMITTEE ON
INTERGOVERNMENTAL AFFAIRS
OF THE
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
MAY 25, 2017
__________
Serial No. 115-34
__________
Printed for the use of the Committee on Oversight and Government Reform
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Available via the World Wide Web: http://www.fdsys.gov
http://oversight.house.gov
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Committee on Oversight and Government Reform
Jason Chaffetz, Utah, Chairman
John J. Duncan, Jr., Tennessee Elijah E. Cummings, Maryland,
Darrell E. Issa, California Ranking Minority Member
Jim Jordan, Ohio Carolyn B. Maloney, New York
Mark Sanford, South Carolina Eleanor Holmes Norton, District of
Justin Amash, Michigan Columbia
Paul A. Gosar, Arizona Wm. Lacy Clay, Missouri
Scott DesJarlais, Tennessee Stephen F. Lynch, Massachusetts
Trey Gowdy, South Carolina Jim Cooper, Tennessee
Blake Farenthold, Texas Gerald E. Connolly, Virginia
Virginia Foxx, North Carolina Robin L. Kelly, Illinois
Thomas Massie, Kentucky Brenda L. Lawrence, Michigan
Mark Meadows, North Carolina Bonnie Watson Coleman, New Jersey
Ron DeSantis, Florida Stacey E. Plaskett, Virgin Islands
Dennis A. Ross, Florida Val Butler Demings, Florida
Mark Walker, North Carolina Raja Krishnamoorthi, Illinois
Rod Blum, Iowa Jamie Raskin, Maryland
Jody B. Hice, Georgia Peter Welch, Vermont
Steve Russell, Oklahoma Matt Cartwright, Pennsylvania
Glenn Grothman, Wisconsin Mark DeSaulnier, California
Will Hurd, Texas John Sarbanes, Maryland
Gary J. Palmer, Alabama
James Comer, Kentucky
Paul Mitchell, Michigan
Jonathan Skladany, Staff Director
Rebecca Edgar, Deputy Staff Director
William McKenna, General Counsel
Drew Baney, Professional Staff Member
Kiley Bidelman, Clerk
David Rapallo, Minority Staff Director
Subcommittee on Government Operations
Mark Meadows, North Carolina, Chairman
Jody B. Hice, Georgia, Vice Chair Gerald E. Connolly, Virginia,
Jim Jordan, Ohio Ranking Minority Member
Mark Sanford, South Carolina Carolyn B. Maloney, New York
Thomas Massie, Kentucky Eleanor Holmes Norton, District of
Ron DeSantis, Florida Columbia
Dennis A. Ross, Florida Wm. Lacy Clay, Missouri
Rod Blum, Iowa Brenda L. Lawrence, Michigan
Bonnie Watson Coleman, New Jersey
------
Subcommittee on Intergovernmental Affairs
Gary Palmer, Alabama, Chairman
Glenn Grothman, Wisconsin, Vice Val Butler Demings, Florida,
Chair Ranking Minority Member
John J. Duncan, Jr., Tennessee Mark DeSaulnier, California
Trey Gowdy, South Carolina Matt Cartwright, Pennsylvania
Virginia Foxx, North Carolina (Vacancy)
Thomas Massie, Kentucky (Vacancy)
Mark Walker, North Carolina
C O N T E N T S
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Page
Hearing held on May 25, 2017..................................... 1
WITNESSES
Mr. John W. Hurt, Chief Financial Officer, Federal Student Aid,
U.S. Department of Education, Washington D.C.
Oral Statement............................................... 7
Written Statement............................................ 9
The Hon. Kathleen S. Tighe, Inspector General, U.S. Department of
Education, Washington D.C.
Oral Statement............................................... 15
Written Statement............................................ 17
Mr. Justin Draeger, President, National Association of Student
Financial Aid Administrators (NASFAA), Washington D.C.
Oral Statement............................................... 26
Written Statement............................................ 28
IMPROPER PAYMENTS IN THE FEDERAL GOVERNMENT: STUDENT AID
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Thursday, May 25, 2017
House of Representatives,
Subcommittee on Government Operations, joint with
the Subcommittee on Intergovernmental Affairs,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittees met, pursuant to call, at 10:02 a.m., in
Room 2154, Rayburn House Office Building, Hon. Mark Meadows
[chairman of the Subcommittee on Government Operations]
presiding.
Present from Subcommittee on Government Operations:
Representatives Meadows, Hice, Jordan, Ross, Blum, Connolly,
Norton, Lawrence, and Watson Coleman.
Present from Subcommittee on Intergovernmental Affairs:
Representatives Palmer, Grothman, Foxx, Walker, Demings, and
DeSaulnier.
Mr. Meadows. The Subcommittee on Government Operations and
the Subcommittee on Intergovernmental Affairs will come to
order. And without objection, the chair is authorized to
declare a recess at any time.
Good morning, and welcome to everybody to this joint
subcommittee hearing on improper payments at the Department of
Education. Today's hearing is a continuation of the committee's
work to oversee improper payments throughout the government and
also as a continuation of the committee's oversight of the
Federal Student Aid program.
Improper payments is an important topic that doesn't get
enough attention and is also critical for us to get it right.
Addressing this area has been especially challenging at the
Federal Student Aid, given the richness and complexity of the
programming.
Student aid disbursements, which total nearly $130 billion
a year, are made in accordance with complex rules, some of
which are too burdensome, and in conjunction with stakeholders
at schools, contractors, and college access providers.
Rightfully so, the inspector general, who we welcome today, has
designated this area as a ``management challenge,'' quote, for
the agency. This has been a management challenge for FSA since
2012. Let's be clear, though. FSA has all the tools it needs to
fix this problem.
When Congress created FSA as a performance-based
organization in 1998, it gave the organization all the
flexibility necessary to get the job done, and in return, the
statutory expectation was that FSA would be transparent and
that Congress would hold it accountable.
When FSA testified before this committee not too long ago
in November of 2015, I said that Congress created this PBO and
then walked away. I said we, Congress, didn't uphold our end of
the bargain and pledged to continue with that oversight, and we
have.
Which brings me to my next point perhaps addressing the
elephant in the room. We are looking forward to speaking with
the head of FSA today, but regrettably, he resigned 24 hours
ago. And that is too bad because under statute he was
responsible to Congress for the operations of FSA, and we had
questions.
It is also a slap in the face to the millions of taxpayers
who provided this gentleman with over $430,000, yes, $430,000
in bonuses since 2010. With an investment like that, they
deserve better.
That said, I am pleased to welcome FSA's chief financial
officer here today. We sincerely appreciate you coming, and I
recognize that you only had 24 hours to prepare.
I also look forward to working with Secretary DeVos to
address the shortcomings of the student aid program, including
improper payments. In fact, I spoke with her yesterday, and her
commitment to getting this right was very reassuring. I am
hopeful that as we look to swiftly appointing a new chief
operating officer and a permanent one for the Federal Student
Aid that we will be able to work very closely together and
address some of the concerns the inspector general has pointed
out.
Today, however, we are focused specifically on improper
payments, and I look forward to figuring out how we will really
fix this problem. We need a meaningful dialogue, and we need to
identify real solutions.
And with that, I just again welcome all of you.
Mr. Meadows. I will now recognize the ranking member, Mrs.
Demings, for her opening statement.
Mrs. Demings. Thank you so much, Mr. Chairman, for holding
this very important hearing on improper payments, and I also
welcome our witnesses and thank you for being here with us
today.
Loan services have had a lamentable record of taking
advantage of the students who rely on them. For too long, they
did this with few repercussions from the Department. But in
2015, President Obama's Department of Education, Treasury, and
Consumer Financial Protection Bureau announced a joint
statement of principles on student loan servicing. These
principles were developed to address the poor customer service
scores and rampant borrower abuse. This guidance instructed the
Department to consider the past performance of its loan
servicing contracts.
In one of her first official actions, Secretary DeVos
rescinded that guidance. On May 19, Secretary DeVos announced
her intention to hire a single loan servicer that will be
solely responsible for managing the Nation's $1.3 trillion-plus
student loan portfolio and will be able to subcontract to other
companies. Apparently, the Trump administration intends to hire
a fox to guard the hen house.
The National Association of School Financial Aid
Administrators serves 9 of every 10 undergraduates in the
United States and has served the financial aid community for
over 50 years. It recently reported that within Federal Student
Aid office strategic planning is not happening as Congress
intended.
In May 2016 Government Accountability Office concluded that
the Department of Education lacks comprehensive and comparable
information on the nature of borrowers' complaints made to the
Department and its contracted loan services, hindering its
ability to track trends and address borrower concerns. In other
words, the Department of Education was not capable of
protecting student borrowers and preventing abuses by loan
servicing companies.
In response to the GAO report, the Department agreed to
evaluate existing and alternative performance metrics and
compensation strategies as part of its ongoing student loan
servicing procurement and reflect the results in future
servicing contracts. Secretary DeVos seems to be retreating
from that agreement and is moving the Department back to the
bad old days.
I look forward to hearing from the witnesses about specific
plans that are being developed and what actions should be
undertaken to ensure that student borrowers are provided the
best services and loan servicers are given notice that the
Department will not tolerate further abuses.
Thank you so much, Mr. Chairman, and I yield back.
Mr. Meadows. I thank the gentlewoman for her opening
statement.
I recognize the gentleman from Alabama, Mr. Palmer, for his
opening statement.
Mr. Palmer. Thank you, Mr. Chairman. And I want to thank
the witnesses for being here. This is an important issue. It
was an important issue to President Obama in July of 2010. He
signed a bill, the Improper Payments Elimination and Recovery
Act, because it is a drain on our resources. Every dollar that
we send out improper payments is not just a dollar; it is a
dollar plus interest because we are operating in deficit so it
puts a huge constrain on our ability to fund the legitimate
functions of government.
It is a concept that is easy to understand. An improper
payment is any payment that was made improperly, including
payments made to the wrong person for the wrong amount to
ineligible recipients and without supporting documentation. As
a matter of fact, in the GAO's report, 54 percent of the
improper payments that were made were because of insufficient
documentation and inability to authenticate eligibility. That
is not a heavy lift to correct that.
What is hard to understand is how the Federal Government
reported $144 billion of improper payments last year, $11
billion of which was they didn't pay people enough, leaving
$134.7 billion in overpayments. Since reporting began in fiscal
year 2004, the Federal Government has reported $1.2 trillion in
improper payments, and I would like to add again, Mr. Chairman,
that would be plus interest.
Unfortunately, the Department of Education, specifically
the Office of Federal Student Aid, has tended in the same
direction as the rest of the Federal Government in regards to
increasing improper payments and is a good place to start to
dig into this growing problem. I would also like to point out
that in 2016 GAO found several examples of contract
mismanagement that have led to confusion among the student loan
servicers. GAO has specifically highlighted concerns over the
quality of communications and unclear guidance from FSA to the
services.
The Department of Education inspector general is here to
report for the third straight year the Department is not in
compliance with Improper Payments Elimination and Recovery Act
of 2010, as I pointed out, legislation that the President
signed in July of 2010. By law, agencies are required to
conduct risk assessments to determine if programs are
susceptible to significant improper payments. Susceptible
programs must report a statistically valid estimate of improper
payments and other details about the causes and corrective
actions taken by the agency.
The IG has reported concerns about the methodology the
Department uses to develop the estimate. The IG has also
reported that the Department has not conducted effective risk
assessments or used the risk assessments to appropriately
designate programs. These failures are particularly concerning
given the amount of money at risk.
Last year, the Department reported more than $6 billion of
improper payments from just two programs: Direct Loans and Pell
Grants. The Office of Management and Budget has designed both
programs has high-priority programs, which means they are among
the 20 programs with the highest rates of improper payments in
the Federal Government.
However, the estimate that the Department reports is based
on flawed methodology. The Department admits as much in its
annual financial report, which says, ``The Department
acknowledges that its alternative estimation methodology can
lead to volatile improper payment estimates.'' How can we
understand the risk and taxpayer dollars at stake when the
Department is unable to provide effective estimates? The
Department needs to take responsibility for the taxpayer
dollars invested in the agency and do better.
The Department reports that the improper payments are
primarily a result of a failure to verify financial data and
administrative errors made outside of the Department.
Correction: The problem is the Department. It is responsible
for the money. The Department is responsible for developing
effective processes. The Department is responsible for ensuring
that the schools and the students understand the process and
that the process is not overly burdensome.
We are here today to begin the process of helping the
Department to assume this responsibility since it appears
unable to do so on its own. We can't begin to fix the growing
problem of improper payments across the government until
agencies follow suit. And I look forward to working with my
colleagues to do so.
Thank you, Mr. Chairman. I yield back.
Mr. Meadows. I thank the gentleman for his opening
statement.
The chair recognizes the gentleman from Virginia, the
ranking member of the Subcommittee on Government Operations,
Mr. Connolly.
Mr. Connolly. I thank you, Mr. Chairman, and welcome our
witnesses today.
Today's hearing examines improper payments at the
Department of Education, a very important topic, one that this
committee has done a lot of work on, not only Department of
Education but throughout the Federal Government. And we have
reason to be concerned for a lot of reasons.
The Department of Education inspector general has
repeatedly reported on the Department's noncompliance with
Improper Payments Information Act of 2002, the Improper Payment
Elimination and Recovery Act of 2010, and the Improper Payments
Elimination and Recovery Improvement Act of 2012. We must
understand how the Department can improve its evaluation and
targeting of improper payments and how it fails to comply with
the law, in this case, three of them.
However, the more pressing issue at the Department of
Education and the one facing most Americans' checkbooks is the
unethical abusive and predatory actions of student loan
companies themselves. The Department distributes $125 billion
in student assistance every year. With more than $1.3 trillion
in loans on the books, it is in fact one of the largest
financial institutions in the country.
To manage the portfolio, the Department contracts with
student loan companies. Last September, the OIG issued a report
that found multiple student loan companies which were supposed
to be assisting students were actually accessing and changing
student log-on information as part of a predatory scheme to
access their accounts, change their regular mail and email
addresses, and even intercept correspondence.
Specifically, the IG reported that the process for logging
onto the Federal Student Aid website was, quote, ``being
misused by commercial third parties to take over borrower
accounts,'' unquote. It sounds like stealing to me. In one
case, the IG warned that student loan companies changed the
mailing address, phone number, and email address for borrowers
so that it would be difficult for the borrowers to be contacted
by their loan services.
Less than two months ago on April 20th, the staff of this
committee conducted a transcribed interview with the special
agent in charge of this investigation and the IG's Office. The
special agent warned that these companies were, quote,
``controlling thousands of accounts or creating thousands of
accounts and controlling them.'' In other words, the very
companies that were supposed to be helping students, as
contracted by the Department of Education, were in fact abusing
their trust in an egregious way.
In January of this year, the Consumer Financial Protection
Bureau filed suit against Navient, one of the largest student
loan servicing companies in the United States, alleging that it
steered high-risk borrowers into plans designed for those with
short-term financial hardships, misrepresented the consequences
of nonrenewal plans, and prevented some of the most financially
vulnerable borrowers from securing the benefits of payment
plans specifically intended for them.
In response to documented abuse by loan servicers in the
default rate of one default for every 29 seconds, the previous
administration issued a memorandum requiring the FSA to do more
to help borrowers manage and discharge debt. The new guidance
put protections in place for borrowers by reducing the
possibility that new contracts would be given to companies that
had misled or otherwise harmed debtors.
Unfortunately, the new Secretary of Education, Ms. DeVos,
has rescinded those directives and instructed the FSA to move
forward with awarding contracts to companies that have current
lawsuits against them or have admitted in court to their abuses
and have been fined millions of dollars. The elimination of
these important protections by the Secretary herself allows
student borrowers to be charged up to 16 percent of the
principal and accrued interest owed on loans unless they enter
the government's Loan Rehabilitation Program within 60 days of
default.
The Secretary also intends to shift to contracting with one
loan servicer, one, which will potentially have subcontractors
along with them. This policy would eliminate direct government
oversight of many loan servicers. I would like to know how this
new policy will provide better customer service and reign in
loan servicer abuse. From the announcement by the Secretary, it
appears the Department will in fact have less oversight of the
loan servicers, not more, in this new model.
The rollback of these vital protections and financial
oversight, combined with recently announced budget by the
President, represent a unilateral retreat from safeguarding the
best interests of students and borrowers. Budget outlines a
$9.2 billion or 13.5 percent cut to the Department of
Education. The administration would eliminate the Federal
Student Loan Forgiveness Program for public service workers,
limit student loan repayment options, and end federally
subsidized student loans.
The actions of this administration constitute in my view an
assault on education and economic opportunity. Education is an
investment. The government has a return on that investment.
When we shortchange that investment by leaving students to fend
for themselves against unscrupulous loan services or withdraw
Federal support for education, we diminish our expected return:
the talented, well-educated workforce the United States so
desperately needs in the 21st century as we move forward.
With that, I yield back.
Mr. Meadows. I thank the gentleman for his remarks.
I will hold the record open for five legislative days for
any member who would like to submit a written statement.
I will now recognize our panel of witnesses. I am pleased
to welcome Mr. Jay Hurt, chief financial officer for Federal
Student Aid at the U.S. Department of Education; the Honorable
Kathleen Tighe, inspector general of the U.S. Department of
Education, welcome; and Mr. Justin Draeger, president of the
National Association of Student Financial Aid Administrators.
Welcome. Welcome back. Welcome to you all.
Pursuant to committee rules, all witnesses will be sworn in
before they testify, so if you will please rise and raise your
right hand.
[Witnesses sworn.]
Mr. Meadows. Thank you. Please be seated. Let the record
reflect that the witnesses answered in the affirmative.
In order to allow time for discussion, we would appreciate
if you would limit your oral testimony to five minutes.
However, your entire written testimony will be made part of the
record.
Mr. Hurt, you are recognized for five minutes.
WITNESS STATEMENTS
STATEMENT OF JAY HURT
Mr. Hurt. Thank you, Chairmen Meadows and Palmer, Ranking
Members Connolly and Demings, and members of the subcommittees,
for the opportunity to join you today. My name is Jay Hurt, and
as the FSA CFO, I am the accountable--program accountable
official for improper payments at Federal Student Aid.
I am here to talk to you about improper payment estimates
for the Pell Grant and Direct Loan Programs, the most recent
audit of the Department's compliance with IPERA, and our work
to minimize the level of improper payments in these two
programs. As the largest source of student aid for
postsecondary education in the United States, FSA delivered
more than $125 billion in aid to more than 13 million students
attending more than 6,000 schools last year.
FSA must balance the simplicity and efficacy of the Federal
student aid delivery process with the need to protect taxpayer
dollars. This balance has led us to create a highly automated
and integrated aid delivery process with hundreds of controls
to combat improper payments.
We appreciate the partnership with our IG looking for
opportunities to improve this process. In 2014, OMB approved
our alternative improper payment estimation methodology for
Pell Grant and Direct Loan Programs. This methodology leverages
data collected through FSA program reviews, avoids significant
costs that would otherwise be required for separate testing at
schools if FSA were to use statistical sampling techniques and
integrates the improper payment estimation into core FSA
monitoring functions.
In June 2016, FSA submitted updates to the alternative
sampling methodology to OMB in response to findings from the
IG's fiscal year 2015 IPERA Compliance Audit Report. OMB
approved the revised estimate methodology in October of 2016.
As a result of the changes to the methodology, and as a likely
result of the inherent variability of the methodology, the
fiscal year 2016 estimated improper payment rate for the Pell
Grant and Direct Loan Programs increased over the estimates
produced in fiscal year 2015 and were higher than the targets
set in fiscal year 2015.
The improper payment rates are primarily based on the
assessment of completed program reviews. Schools are selected
for a program review based on risk-based criteria. Only a small
set of schools are selected for review randomly, typically
less-risky schools. Because all schools are not randomly
selected for review, the extrapolation of findings from these
reviews does not produce an estimate that is representative of
the full population of payments. In order to eliminate the
variability of the estimate to the tolerance level prescribed
by current OMB guidance, FSA would need to spend millions more
on its improper payment estimation process and impose
significant burdens on roughly 1,000 schools. If FSA were to
divert resources from the higher-risk program reviews to the
randomly selected reviews, we would essentially be giving up
the identification and recovery of improper payments in order
to improve our estimates.
Although fiscal year 2016 IPERA Compliance Audit Report
identified the Department as noncompliant with IPERA due to
missing its improper payment reduction targets, the IG found
that the Department's improper payment reporting, estimates,
and methodology were generally accurate and complete. FSA has
developed robust internal controls to prevent, detect, and,
where appropriate, recover improper payments. In designing
controls, FSA strives to strike the right balance between
providing timely and accurate payments to students and ensuring
that controls are not overly costly and burdensome.
In fiscal year 2016, FSA documented and assessed 328
controls to detect and prevent improper payments and found that
97 percent were designed and operating effectively. FSA has
also identified corrective actions to address the root causes
of improper payments. For example, FSA annually reviews
verification procedures that require schools to verify specific
information reported on the FAFSA form by student aid
applicants. These school verification procedures are an
effective control, avoiding hundreds of millions annually in
actual improper payments.
Despite our continuous efforts to reduce improper payments,
it would be misleading for us to leave Congress and the public
with the impression that zero percent improper payment rate is
feasible. In its 2016 Global Fraud Study, the Association of
Certified Fraud Examiners found that the typical organization
loses 5 percent of revenues in a given year as a result of
fraud. As currently defined by OMB, improper payments include
much more than fraud. Using this definition, FSA's estimated
combined fiscal year 2016 improper payment rate is 4.85
percent.
I appreciate the opportunity to provide you with this
information, and I welcome any questions you have.
[Prepared statement of Mr. Hurt follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Meadows. I thank you, Mr. Hurt.
We now recognize you, Ms. Tighe, for five minutes.
STATEMENT OF KATHLEEN S. TIGHE
Ms. Tighe. Thank you very much. I apologize for my voice
this morning. I'll try to speak loud.
Thank you for inviting me here today to discuss the work of
the Department of Education Office of Inspector General
involving improper payments. Our work related to improper
payments has evolved and increased over the years with the
passage of several statutes, including the Improper Payments
Elimination and Recovery Act of 2010. In these efforts, where
we have identified instances of noncompliance with IPERA by the
Department and weaknesses in the Department's efforts to
measure, estimate, and report on improper payments, we have
provided recommendations for improvement.
In our recent improper payments audit covering fiscal year
2016, we found for the third year in a row that the Department
did not comply with IPERA. Like the previous two years, the
Department did not meet the annual reduction target for the
Direct Loan Program. This year, it also did not meet the annual
reduction target for the Pell Program. The improper payment
estimate for the Pell Program was 7.85 percent, or $2.21
billion, which exceeded the reduction target of 1.87 percent.
The improper payment rate for the Direct Loan Program was 3.98
percent, or $3.86 billion, which exceeded the reduction target
of 1.29 percent.
This was not unexpected. As in response to my office's
recommendations, the Department had revised its estimation
methodologies for both the Direct Loan and Pell Programs to
include estimates of inaccurate self-reported income and
improper payments associated with ineligible programs and
locations. The Department also expanded the number of program
reviews it used.
Although these revisions to its methodologies caused a
significant increase in improper payments for both programs,
tripling the estimate for the Direct Loan Program and
quadrupling the estimate for the Pell Program, the increased
rates show the progress the Department has made in its
estimates and provide a more realistic picture where these
programs are in terms of improper payments. This should result
in better information for the Department to use when designing
appropriate corrective action.
Our recent audit also found for the first time that the
Department did not conduct risk assessments that confirmed with
the appropriate requirements to determine whether Department-
managed grant programs and FSA-managed contracting activities
may be susceptible to significant improper payments.
Through its own risk assessment, the Department identified
the rehabilitation services Administration Vocational
Rehabilitation State Grants Program as a program that exceeded
the established improper payments threshold. Single audits
reviewed by the Department had identified questioned costs for
the voc rehab program ranging from $31 million to $44 million,
which are between 1.56 percent and 1.81 percent of program
outlays all over the threshold. Yet despite these findings, the
Department did not conclude the voc rehab program may be
susceptible to significant improper payments and did not report
the program in its fiscal year 2016 annual financial report, as
it was required to do.
Further, for FSA-managed contracting activities, the
Department did not consider seven of the nine required risk
factors. FSA-managed contracting activities accounted for 76
percent of the Department's active contracts in 2016. For the
Department-managed grant programs, the Department did not
consider two of nine risk factors. As a result, these risk
assessments did not comply with IPERA.
Based on our findings, we made 10 recommendations to help
the Department comply with IPERA and improve its improper
payments reporting, estimates, and methodologies. With the
exception of our recommendation pertaining to the voc rehab
program, the Department indicated it will take action to
respond to our recommendations.
This concludes my testimony. I'm very happy to answer
questions.
[Prepared statement of Ms. Tighe follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Meadows. Thank you.
Mr. Draeger, you are recognized for five minutes.
STATEMENT OF JUSTIN DRAEGER
Mr. Draeger. Mr. Meadows, Mr. Palmer, Mrs. Demings, Mr.
Connolly, thank you for the invitation to testify today. As has
been pointed out, NASFAA represents financial aid
administrators at 3,000 public, private colleges, universities,
and trade schools across the United States.
Financial aid administrators really sit at the nexus
between policy and practice, and so we like to believe that our
perspective can add value as how things that emanate from
Washington, D.C., affect students on the ground.
An improper payment can be the result of fraud or it can be
the result of error, and from an institutional perspective,
we've made some progress on both of those fronts in recent
years. Concerning fraud, some of the most recent institutional
practices that have been implemented to combat fraud include
more stringent academic progress monitoring to make sure
students are moving through their program; with help from the
Department of Education, tracking students who are attending
multiple institutions; smaller disbursements made to students
on an ongoing basis; more in-depth one-on-one counseling; and
more faculty involvement to track attendance to make sure
students are actually attending the courses they are taking
financial aid for.
But one of the greatest challenges in dealing with improper
payments within the student aid programs is really in our
efforts to drive down improper payments, we don't want to
simultaneously and sometimes inadvertently drive out the very
students that we're trying to help. So I want to offer two
real-life contrasting examples of--that have come up in recent
years.
First, as has been pointed out by the other folks on the
panel, one of the root causes of improper payments is
unverified financial data from an applicant that is put on
their financial aid application. To correct this issue, the
Department of Education, the IRS several years ago implemented
an IRS data retrieval tool, which was really a win-win because
it allowed students to automatically import their data
automatically verified by the IRS into their application,
lowered barriers for students, and decreased improper payments.
As the folks on the subcommittees are aware, though, in an
unfortunate twist, that tool was taken down in March because it
detected fraud. And without that tool being operational and
securely operational, improper payments will likely increase
and students will have larger-than-necessary barriers in
completing their applications. Still, though, the DRT is a good
example of a tool that automated a process to lower improper
payments and serve students and families.
On the other hand, sometimes when we try to drive down
improper payments, students and schools are subjected to very
burdensome regulations and requirements that have pretty
questionable outcomes and results. For example, the Department
found that 15 percent of all financial aid applicants who said
they did not file a tax return actually did end up filing a tax
return. And on the face of it, that sort of error is
disconcerting.
So the Department began requiring students to provide
documentation from the IRS that they did not file a tax return.
As it turned out, that process was ridiculously complex and
archaic and required 10 business days for students to request a
transcript from the IRS through the U.S. Postal Service. In
2015, 2016, 2017, that sort of archaic process can at best
delay financial aid and at worst, as schools reported, disrupt
enrollment.
And the one unanswered question in all of this is did any
of the changes that resulted from this requirement actually
reduce improper payments? That question was not answered, at
least publicly to the institutions that had to implement this
for students.
Unfortunately, a solution that was under consideration
where the IRS and the Department would, just behind the scenes
through a database match, automatically determine whether
somebody had filed a tax return has since been scrapped.
I want to offer in my last minute here just a few
suggestions. One is that we would like to encourage the
Department to continue to leverage technology whenever
possible, to take the burden off the students and rely on other
Federal or State databases as much as possible to verify
student eligibility. This has to be done, of course, securely.
Second, we need a better partnership with the Department of
Education to work closely together so that any new requirements
or data collection requirements go through some sort of testing
first so that we understand the impact on students and schools.
Audit and program reviews must be issued in a timely way, and
the Department should consider a voluntary program where
schools can come forward with errors without fear of reprisal,
fines, and liabilities in the spirit of partnership to fix
improper payments.
And finally, we need congressional help to simplify
everything from the application to the formula determining
student eligibility.
Thank you for your time and schools stand with you in
wanting to ensure the right dollars are going to the right
students.
[Prepared statement of Mr. Draeger follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Meadows. Thank you all for your testimony.
The chair recognizes the gentlewoman from North Carolina, a
leader in educational issues, Dr. Foxx, for five minutes.
Ms. Foxx. Thank you very much, Mr. Chairman. And I want to
thank our witnesses for being here today and providing
testimony on this very, very important issue to all Americans.
When you hear about $3.86 billion in fraud, that affects every
person in this country, not just the people who are applying
for financial aid.
Mr. Hurt, FSA testified before this committee earlier this
month on the suspension of the FAFSA's IRS data retrieval tool,
the DRT, which Mr. Draeger referred to. That tool is touted for
curbing improper payments by providing for more accurate
financial data reporting by applicants.
In response to the DRT being down, new flexibilities were
announced by the Department on April 24 for borrowers,
including removing the requirement for institutions to collect
documentation for verification of non-filing applicants. How is
the Department balancing these flexibilities while also
attempting to improve its improper payment rate management? And
do you expect improper payments to rise given the Department's
reliance on manual reporting and backend verification during
the DRT suspension?
Mr. Hurt. Thank you, Congresswoman Foxx. Yes, we do--during
the--the DRT actually assisted--it was a win-win situation. It
assisted with the reduction of improper payments, it reduced
burdens on schools, and it reduced burden to applicants. While
we are working on the security of the tool, we are providing
alternative means--information about alternative means to
obtain your tax information. We're also--we did provide some
relief to schools around the verification requirements. And we
do expect that there will be some impact on improper payments.
That is--that's a given. That's what the DRT was meant to do.
But we are trying to balance--to your point and the point of
Mr. Draeger, we're attempting to balance the burden on schools
and the denial of service to the most needy with the--
offsetting the improper payments that come.
Ms. Foxx. Thank you. You know, you said earlier that zero
mistakes is unrealistic. That is not what the American people
expect out of their government, especially, again, when you are
dealing with the money of hardworking taxpayers. And so I find
it very, very frustrating when you say we can't have a
program--I don't use an ATM card but the banks have ATM
machines. I bet their improper payments are a whole lot lower
than the improper payments of the Department of Education. And
I think we should strive for zero mistakes.
You are not dealing with your own money, you are dealing
with somebody else's money, and I want the people in the
Department to remember that every day.
So going back to that, the inspector general has flagged
improper payments as a management challenge every year since
2012, but during that time, OMB has designated the programs as
highly susceptible for significant improper payments. What
concrete steps have you taken to reverse this trend, whether it
be combatting fraud or reducing human or systemic errors? Why
haven't they worked? And what is so wrong with your office that
you can't move in a more timely fashion?
Mr. Hurt. For the past three years, we have been
noncompliant with IPERA. The noncompliance is based on the fact
that we have missed our estimates, our targets, and there's a
number of reasons for that. One of them is the fact that we've
been changing the methodology to address the findings from the
IG. The IG has given us in '14 and '15--fiscal year 2014 and
2015 they gave us 19 recommendations, and we did implement all
19 to improve our estimates.
Part of the issue is, though, the variability of the
issue--of the estimates and the need to increase cost to the
taxpayer and burden on schools to be able to improve on the
estimate. We--it would be a significant burden on schools and
cost to taxpayers simply for the improvement of the estimate.
Instead, we spend more effort and money on an annual basis on
the actual improvement of the controls themselves.
So, for example, this past year we implemented early--what
was referred to as Early FAFSA and Prior-Prior. That was a
change to the FAFSA that it was done earlier and it allowed
applicants to utilize prior-prior--tax payment information that
was already complete. Both of those things allowed them to be
more accurate in their filing and didn't require them to come
back and file kind of corrections. So what that did was
improved our improper payment as--it--actually, the controls
over real improper payments as opposed to just the estimate.
Ms. Foxx. Thank you. Mr. Chairman, I know my time has
expired, but I would like to say I will be submitting some
questions to some of the panelists for their response. Thank
you, Mr. Chairman, for your indulgence.
Mr. Meadows. I thank the gentlewoman. And as we have those
questions, we will give each of you 30 days to respond to those
and get it back to the committee.
The chair recognizes the gentleman from Virginia, Mr.
Connolly, for five minutes.
Mr. Connolly. I thank the chair. I thank our panel for
being here. And I certainly agree with my friend Ms. Foxx that
the goal should be to strive to move to zero in terms of
improper payments. Depending on how one counts their $150
billion of improper payments, Federal Government-wide every
year, that sound right to you Inspector General Tighe, around
that?
Ms. Tighe. Yes, it's quite large.
Mr. Connolly. But if you were to stretch it out over a 10-
year period and if we could ever get it close to zero and
dedicated just, you know, the savings to deficit reduction, it
would be a good down payment.
Ms. Tighe. It would be.
Mr. Connolly. And it wouldn't cut any programs and it
wouldn't raise any taxes. So the more efficient we can get, the
better off we are going to be from a fiscal point of view and
the discipline of efficiency. So I agree with Ms. Foxx in
making that point.
Ms. Tighe, I began by citing your report that consistently
the Department of Education has failed to comply fully with the
Improper Payments Information Act of 2002, the Improper
Payments Elimination and Recovery Act of 2010, and the Improper
Payments Elimination and Recovery Improvement Act of 2012. Is
that accurate?
Ms. Tighe. That is accurate.
Mr. Connolly. Mr. Hurt, why is that the case? These are the
laws?
Mr. Hurt. We--over the years, we have taken the
recommendations from the IG and modified the methodology.
That's one of the reasons why the rate differs from the actual
target. We--the way the IPERA works, we cannot go back and
modify the target when the methodology changes. So as we've
become more inclusive of our estimates, our estimates include
looking for more risks in the estimates, and they grow. The
targets don't grow. Therefore, when we miss the targets, by
definition, we're noncompliant. So that's one reason they--
we've been noncompliant.
And the other is just the nature of the estimate is--it
is--we base it on existing work and monitoring work within the
Federal Student Aid, so that monitoring work is a targeted--
most of our work is targeted to high-risk areas, and it's not
randomly selected. And we do that because we want to find
improper payments. We want to get--find opportunities to fix.
Mr. Connolly. Ms. Tighe--I am sorry, because I am running
out of time. Ms. Tighe do you agree with Mr. Hurt's explanation
for why the Department is not in compliance?
Ms. Tighe. Well, yes, for the most part. I would say that
until this past year our recommendations made in our peer
reports weren't always necessarily followed by the Federal
Student Aid. That changed this past year when they did take our
recommendations from our '14 and '15 reports, which were very
similar in findings and decided to I think do better root-cause
analyses and then also then plot out a strategy for dealing
with those. I do think Federal Student Aid is in a better place
right now than it was a couple of years ago.
Mr. Connolly. Okay. I am going to run out of time, so let
me get to--that is good to hear. Let me get to this issue,
though, of private companies engaging in clearly unethical if
not illegal behavior. How widespread is that, and what is the
relationship between that behavior and improper payments?
Ms. Tighe. Well, I think the--we've certainly seen the
issue--you saw the--you mentioned the report that we did last
summer. We consider it to be a problem that keeps reoccurring.
I think the relationship to improper payments is not all that
clear. It's certainly bad behavior, and what I would worry
about, it's really for the borrowers' accounts who are taken
over. And I think there could be a relationship between--which
do not affect the Direct Loan and Pell Programs directly, but
the fact that they're cut off sometimes from their own servicer
and not able to make good choices on their loans is a problem.
Mr. Connolly. Mr. Hurt, why wouldn't the Department just
cut off any company that engages in that kind of behavior?
Mr. Hurt. We ----
Mr. Connolly. Why would we continue to contract with a
company that is clearly behaving I would argue illegally?
Mr. Hurt. The--I probably should draw a distinction between
that activity, which is done by third-party providers, and
our--the loan servicing companies that contract with the
Department of Education. The findings around third-party
providers are not our loan servicing companies. They are--they
can be unscrupulous actors, and we are cooperating fully--
actually collaborating with our IG colleagues to identify bad
actors in those scenarios and take actions and put in controls
to avoid that from happening.
Mr. Connolly. My time is up but I see Ms. Tighe wanted to
comment on that and then I will ----
Mr. Meadows. And I want you to comment on that.
Mr. Connolly. Yes. Thank you.
Ms. Tighe. Thank you. I--Mr. Hurt is correct is that we are
talking about in our report and what I was just talking about
are third-party--they're really people pretending to be--
companies pretending to be loan consolidators. The loan
services who the Department contracts with are different than
that. But nevertheless, these bad actors need to be dealt with.
And we did our report and we made really two major
recommendations because we'd like to be able to prosecute some
of these people. And one of those things was simple--very
simple fix of changing the banner--the log-in banner on the
website. And we made that recommendation a while ago now, and
I'm happy to say I think FSA just implemented it I think last
week, and that's a good thing. But ----
Mr. Meadows. When did you make that recommendation?
Ms. Tighe. It was September a year ago I think. And I could
be wrong on that, so let me check on that.
Mr. Connolly. No need to rush into these things, Mr.
Chairman.
Ms. Tighe. Yes.
Mr. Connolly. Okay. Well, this whole area of the topic we
are going to pursue perhaps in some subsequent questioning, but
I thank you all for your testimony, and thank you for your
indulgence, Mr. Chairman.
Mr. Meadows. I thank the gentleman for his insightful
questions.
Before I recognize the chairman of the subcommittee, I want
to recognize a delegation that came in from the European
Parliament Committee on Budgetary Control. I want to welcome
you from across the pond and say thank you for being here and
certainly for your willingness to share your ideas and allow us
to share ours. So welcome.
And with that, I recognize the chairman of the
subcommittee, the gentleman from Alabama, Mr. Palmer.
Mr. Palmer. I would like to welcome the members of the
European Parliament as well.
Now to get back to business, FSA did not meet three of its
performance goals, Mr. Hurt, two of which specifically related
to customer service. There are only two performance metrics
that evaluate customer service, so FSA did not meet either of
its customer service goals. What is causing this failure?
Mr. Hurt. So the goals that you referenced, one was the
American Customer Satisfaction Index. That is the--it's a way
that we can measure customer satisfaction that is consistent
with what many ----
Mr. Palmer. My question is what caused the failures. So I
don't need a description.
Mr. Hurt. Sorry.
Mr. Palmer. Not to be rude, but just for sake of time,
please.
Mr. Hurt. So the causes were twofold for the ACSI score.
One was there was a methodology change. We--to be more
consistent with the way the score is calculated with others in
the industry, we switched to--it was either from phone to an
email interaction. I think that's the way it went. That was one
way--one cause. Another cause was most likely things associated
with changes to the way we work. For example, we implemented
FSAID to improve security, and that more than likely had an
impact on satisfaction as well. So we had to--back to that
tradeoff of ensure some security for our applicants and the
folks--our customers that use our service, but it was at the
detriment to some extent to the satisfaction and ease with
which those good actors can use it.
Mr. Palmer. To what extent do you consider how you can
improve service to help reduce administrative errors by others
that cause improper payments? So when I look at the GAO report
where most of these improper payments occur, and this may or
may not apply in this situation, but it is just insufficient
documentation, inability to authenticate, process errors. I
think that is what we are talking about now.
Mr. Hurt. The bulk of the errors or the--probably the most
significant is around errors of eligibility. So it's
misreported income or misreported other aspects on the
application. We do do--that's what the DRT helps us greatly
with. It does help us with the misreporting of income. In
addition to DRT, school verification can be very helpful in
identifying mistakes in eligibility. So that's where a lot of
our focus is on that, but there's ----
Mr. Palmer. When you talk about misreported income, Mr.
Draeger, how much of that is fraud? In your testimony you
mentioned that student fraud ring activity had increased 82
percent from 2009 to 2013. How much of that is fraud and how
much of an ability do we have to catch that?
Mr. Draeger. It's difficult for me to give an exact
percentage of how much is fraud versus just honest mistakes.
What we will say--what we see on campuses are that those who
are interested in committing fraud have a very specific and
targeted way that they pursue their fraudulent activities. And
in recent years, schools have found ways to then defend against
that sort of fraud. A lot of times when it comes to improper
payments with income reporting, it's--it appears to be honest
mistakes, confusion about which tax years students or families
should be using. So to the extent that this can be automated
and we can get a secure IRS data retrieval tool back working,
that seems to be one of the best solutions ----
Mr. Palmer. General Tighe, you want to comment on that?
Ms. Tighe. Yes, I do. I would just point out one thing we
need to keep in mind is the DRT is a fine tool, and we would
totally agree with that. It is not going to catch fraud because
people who want to defraud the government, the fraud rings we
were talking about, based on--usually representing your income
to be zero, they aren't using the DRT so it's not going to help
with that.
Mr. Palmer. So the checks go directly to the fraudsters and
not to the schools?
Ms. Tighe. Well, the checks, yes, will go to the credit
balance--the balance that doesn't cover tuition and room and
board will go to the students and to the--and the students
really aren't students; they're fraudsters.
Mr. Palmer. Getting off maybe just a little bit if the
chairman will indulge me, is there instances of fraud where
there are fake institutions? I mean, we have had this with
Medicaid where there are people filing for Medicaid
reimbursements and they were nonexistent entities. Does that
happen in this case, General Tighe? Do we know of any of that?
Ms. Tighe. I'm not aware.
Mr. Palmer. Okay. Let me ask you one other quick question.
In your fiscal year 2016 audit finds issues in the Department's
report in estimates and methodology. What did you specifically
find with regard to challenges with the estimates?
Ms. Tighe. Specifically, we found a couple of things, which
were that they didn't--they included some program reviews that
weren't geared toward finding improper payments. So they would
deal--like there was one that dealt with a cohort default rate,
so that should have been excluded from the sample of program
reviews, and there were issues like that. We did recalculate
the improper payments rate estimate, and those--correcting for
those mistakes really only made a marginal increase in the
improper payment rate, so we did not consider them to be hugely
significant errors, but they were errors that they need to deal
with.
Mr. Palmer. Thank you. I yield back.
Mr. Meadows. I thank the gentleman.
The chair recognizes the ranking member, Mrs. Demings, for
a generous five minutes.
Mrs. Demings. Thank you so much, Mr. Chairman.
Inspector General Tighe, back to your report from March of
2016, I believe the report pretty much found that the
Department knowingly misled the public, that they misled the
public about the findings in its own review of loan services
and potential widespread abuses, including charging active-duty
servicemembers high interest rates on student loans. Your poll
found that one of these companies, Navient, charged nearly
78,000 members of the military interest in excess of the 6
percent cap permitted by a law specifically designed for
servicemembers. Is that pretty much correct?
Ms. Tighe. That's correct.
Mrs. Demings. Navient continues to service loans for the
Department today. Is that correct?
Ms. Tighe. Yes, that's correct.
Mrs. Demings. I am wondering if this company, considering
its history, may be too big to fail. I am wondering if no
matter what the abuses, the Department of Education will
continue to contract with them. Last week, Secretary DeVos laid
out her vision of the loan servicer model. As we all know, the
loan servicer model allows the one prime contractor to
subcontract out portions of the portfolio or manage the whole
itself.
Mr. Hurt, currently, four loan servicers have submitted
proposals for the opening bidding process: Navient, FedLoan
Servicing, and a combination of Nelnet and Great Lakes
Educational Loan Services. Is that correct to your
understanding?
Mr. Hurt. It is.
Mrs. Demings. Can you explain the separation between the
procurement arm of FSA and the management side, and who is
going to make the determination as to the award of the
contract?
Mr. Hurt. It's my understanding that ultimately the
contracting officer is the one with the warrant so they make--
they will make the final decision, but it'll be based on a
recommendation from a technical evaluation panel and a cost
evaluation panel.
Mrs. Demings. Can you explain the separation between the
procurement arm of FSA and the management side?
Mr. Hurt. The procurement--the acquisitions office is an
office within Federal Student Aid, so they report--the head of
acquisitions reports directly to the chief operating officer.
Mrs. Demings. Reports directly to them?
Mr. Hurt. Yes, ma'am.
Mrs. Demings. Okay. It seems that one loan servicer under
contract managing the entire portfolio, the Department would
have no recourse if the servicer commits any number of abuses
we have spoken to today. It will be maybe too big to fail. How
will this huge--excuse me. In fact, it appears that there are
subcontractors under the loan prime contractor. The
subcontractors will be only accountable to the prime, leaving
the Department with even less oversight than it has today.
Would you agree with that or no?
Mr. Hurt. No, ma'am. We have--the rerelease of the
modification for the procurement has thousands of requirements
and has performance metrics that we'll use to hold the--any new
servicer accountable for their role. Any subcontractors that
report to the prime, that is a relationship between the prime
and the sub, but we will hold the prime accountable for all
metrics and all service that they provide for borrowers.
Mrs. Demings. Okay. Check my time. President Trump proposed
a $9.2 billion or 13.5 percent cut to the Department of
Education. How will this huge cut affect the Department's
ability to oversee these services?
Mr. Hurt. The Department just issued their budget a few
days ago. That's something that we will--we have yet to analyze
from an operational perspective.
Mrs. Demings. So you are not sure how the cuts, the 13.5
percent cut will affect your ability to oversee this process,
not yet?
Mr. Hurt. I'll have to take that question and get back to
you.
Mrs. Demings. Okay. Ms. Tighe, given your experience over
the last seven years, are you confident that the Department can
cut its funding and simultaneously improve the management of
its largest contract in the history of the Department?
Ms. Tighe. Well, I think budget cuts that would cut
resources--let me back up. One of our management challenges
historically has been oversight and management of the various
entities that the Department has to oversee and manage, whether
it's contractors or grantees, and I think that it's going to be
a challenge for the Department if resources are cut in those
areas to maintain a level of sufficient monitoring and
oversight that is needed.
Mrs. Demings. Thank you so much.
And, Mr. Chairman, thank you for your generous five
minutes. I yield back.
Mr. Meadows. I thank the gentlewoman.
The chair recognizes the gentleman from North Carolina, Mr.
Walker, for five minutes.
Mr. Walker. Thank you, Mr. Chairman.
Again, welcome to our guests across the Atlantic Ocean. We
are always happy to see you guys.
Mr. Hurt, as the chief financial officer now, I know you
haven't had a lot of time to prepare, but I have got a few
questions specifically on the data retrieval tool. It has been
offline since March the 3rd, 2017. Do you expect it to be
offline for financial aid filing purposes until October or
when?
Mr. Hurt. The data retrieval tool will come up with a mass
encrypted solution for the '18/'19 FAFSA on October 1. That's
the--that's when the cycle starts for '18/'19.
Mr. Walker. Okay. And how does the outage affect improper
payments for calendar year 2017, this year?
Mr. Hurt. For calendar year 2017, we would expect that the
improper payments will increase related to the lack of DRT
being--or DRT not being available.
Mr. Walker. So, I mean, your best word on record is that
these improper payments will continue to increase until
basically this is back online. Is that correct?
Mr. Hurt. They will--the portion of improper payments that
the DRT was actually helping us to avoid will for that period
of time until October 1 for--well, for 2017/18, unfortunately,
the improper payments will increase.
Mr. Walker. So yes. That is painful to hear. The Department
announced new flexibilities for schools working with students
given the data retrieval tool outage. Can you talk about these
new flexibilities? What were they?
Mr. Hurt. For schools they--specifically, I believe the
school verification on income, the--it was--the old
requirement--or the requirement normally is to get a specific
tax transcript from the IRS and now we will require a signed
tax form essentially.
Mr. Walker. Okay. What do you propose or how will the
Office of Federal Student Aid ensure that improper payments do
not suffer during the DRT outage? Do you have any advice? I
mean, what are we to do in the meantime?
Mr. Hurt. We are--one of the things we can do and we're--
we've been working on is to increase our communication through
our numerous channels to the applicant to help them use these
alternative ways to get their tax information. We do that
through our StudentAid.gov. We do that through social media. We
do that through our communication and coordination with student
advocacy groups. So we're using multiple avenues to attempt to
train or assist the applicants in this period.
Mr. Walker. I guess time will tell how successful those
options are.
Inspector General Tighe, first of all, thank you for being
here. You are probably not feeling your best today but ----
Ms. Tighe. No.
Mr. Walker.--I am glad you are being such a trooper today.
This week, news broke that the data retrieval tool was misused
in a criminal personal manner in September of 2016 by a
Louisiana man who was targeting personal information on Donald
Trump. Can you confirm this reporting?
Ms. Tighe. Yes.
Mr. Walker. Okay. The data retrieval tool is clearly a
valuable tool to Federal Student Aid to assist with ease of
processing for students--we know that--and also to program
integrity measures such as curbing improper payments. However,
the data retrieval tool is without a doubt also a high-value
target for cybercriminals. How do we strike that balance, the
right balance between program integrity, efficient service to
students and schools, and then also the cybersecurity concerns?
Ms. Tighe. I should point out that the--in the matter you
talked--you spoke about with the criminal case involving the
misuse of the DRT to get--try to get the President's
information, it was--they were unsuccessful in achieving that.
They did not have enough information to trigger access of the
AGI available. And I'm also happy to say that it was noticed by
the IRS and they immediately brought it back to us. And we
have--and that resulted in somebody's arrest and then
prosecution, which is a good thing.
Mr. Walker. Sure thing.
Ms. Tighe. But I think it's an important tool, but I do
think it's good that the Department and the FSA is--are looking
at ways of keeping the tool viable but still protecting it
against its misuse. I mean, the masking will help the DRT
misuse problem, but we also have to stay one step ahead of the
bad guys, right ----
Mr. Walker. Yes.
Ms. Tighe.--because, you know, they're always thinking of
things. And we would also like to see the Department, who has a
recommendation that was in our report that Ranking Member
Demings noted was--they need to do more proactive analytics
related to usage on the FAFSA online and--because there were
patterns that I think they could have seen of bad guys.
Mr. Walker. Thank you, General Tighe. I appreciate your
work.
Mr. Chairman, I yield back.
Mr. Meadows. I thank the gentleman.
The chair recognizes the gentlewoman from the District of
Columbia, Ms. Eleanor Holmes Norton.
Ms. Norton. I thank the chairman for this hearing.
And I am interested in the issue of accountability because
we are not dealing with a new issue, although the inspector
general report came out in September about the misuse of the
Department's own systems to take advantage of students. Now,
the students are going to be under a lot of pressure because of
substantial cuts to subsidized student loan programs that at
least are being proposed. I certainly hope the appropriators do
the right thing, though.
The inspector general's report was fairly emphatic that the
systems were taken advantage of, Department systems were taken
advantage of. Then, the Consumer Financial Protection Bureau
and I believe jointly with the Department did a public inquiry
and found a plethora, a huge number of complaints regarding
loan servicers. I do want to quote the finding. They found a
huge number of complaints, the Department itself. It already
had the inspector general's report, but the finding was,
``Current saving practices may not meet the needs of borrowers
or loan-holders.'' What does that mean? It seems a modest way
to frame what has been under discussion at this hearing. What
does that mean, ``may not meet the needs of borrowers or loan-
holders''? Mr. Hurt?
Mr. Hurt. I'm not sure--Congresswoman Norton, I can
speculate what the--about the meaning of that particular phrase
----
Ms. Norton. Well, it was a joint inquiry by the Consumer
Financial Protection Bureau and the Department so that is why I
am asking you what you meant to say. I am interested in
accountability here.
Mr. Hurt. As for--if it relates to the servicer practices
and the work to improve servicer practices, the modification
that just came out for the loan servicing competition, again,
it includes requirements, many of which are requirements or
suggestions that have been made to us to improve borrower
outcomes. So we expect that the outcome of this procurement
will, in fact, have significant improvements to borrower
outcomes while still balancing the cost to taxpayers.
Ms. Norton. Thank you, Mr. Hurt. Now, the Consumer
Financial Protection Bureau has filed a suit against your
largest services, Navient, with rather strong and serious
allegations that it withheld information about income-based
programs and then that they could have lowered borrowers'
monthly payments, then pushed borrowers into forbearance while
of course they were continuing to accrue interest. Are you
familiar with the allegations of the Navient lawsuit?
Mr. Hurt. I am familiar with the allegations.
Ms. Norton. The reason I ask because I don't expect you to
comment on those allegations--the reason I ask is that
apparently you had nine borrowers before, and there is a
proposal to have only one borrower now. Why would you want to
go down to one borrower? And that that could be Navient, which
is of course the biggest of them and the one that is now
ensconced in litigation.
Mr. Hurt. We're looking at this--the new modifications to
the procurement are looking at one loan servicer so that with a
more robust set of requirements and performance metrics that we
can hold that servicer accountable. So the procurement is
actually meant to improve service. But part of the issue of
having multiple servicers is it also spreads the oversight out
a bit thinner. It ----
Ms. Norton. Was there any competition among them?
Mr. Hurt. The incentives structure for the previous--for
the four--or for the previous servicers, there was based on--
there was competition associated with--or allocations were made
based on metrics, allocation of new servicers. So there were
incentives in that previous procurement.
In the one we're looking for, we also were--are looking to
have metrics and adjust metrics to address many of the borrower
outcomes that we're seeking and were recommended to us.
Ms. Norton. Well, I recognize that there are a number of--
there is a competition and that there are a number of
applicants for this role, but I think the Department will be
under very severe pressure if Navient, in the sconce of being
involved in a lawsuit, is made in charge essentially as the
prime contractor of all the subcontractors.
And I thank you, Mr. Chairman.
Mr. Meadows. I thank the gentlewoman.
The chair recognizes the gentleman from Ohio.
Mr. Jordan. Thank you, Mr. Chairman.
Today's hearing highlights exactly what American taxpayers
hate about the Federal Government. Ms. Tighe, isn't it true
that last year there were $144 billion in improper payments
across the government? Isn't that accurate?
Ms. Tighe. That sounds accurate.
Mr. Jordan. Yes, and the trend is up, right? So that number
has been growing?
Ms. Tighe. Yes.
Mr. Jordan. Growing over the last four years?
Ms. Tighe. Yes.
Mr. Jordan. And one of the most egregious agencies that is
part of that overall number is the guy sitting beside you, the
Department of Education, is that correct?
Ms. Tighe. Well, it's not actually ----
Mr. Jordan. It's in the top five, right?
Ms. Tighe. I think top five.
Mr. Jordan. Yes, top five. And the trend is the same with
them. Overpayments have been increasing over the last several
years. Is that right?
Ms. Tighe. Yes.
Mr. Jordan. And ----
Ms. Tighe. Certainly this past year.
Mr. Jordan. Yes. In the Direct Loan and the Pell Grant
areas, they have both been trending up. And you sent them a
letter where you said something like it was a management--they
had improper payments at the Department were a management
challenge. Is that right? You sent a letter to them?
Ms. Tighe. That's correct.
Mr. Jordan. Yes. And it basically said they weren't
complying with the law, right, this IPERA law?
Ms. Tighe. Correct.
Mr. Jordan. Yes. So $144 billion across government, one of
the most egregious agencies within that $144 billion is the
Department of Education. Their trend is up. You sent them a
letter saying, hey, get your act together; you are not even
complying with the law, right?
Ms. Tighe. Yes.
Mr. Jordan. All that is true?
Ms. Tighe. Yes.
Mr. Jordan. And three weeks ago, we had a hearing and we
find out that in the Direct Loan program they had to shut down
their DRT on the FAFSA issue, and they failed to comply with
another law there to notify Congress in the proper way and at
the proper time. Is that true?
Ms. Tighe. Well, the notification I think may be a more
ambiguous issue, but ----
Mr. Jordan. Exactly. Yes. I mean, we had that hearing--so
this is now two hearings in a row this committee has had with
the Department of Education has not complied with two Federal
laws. And, oh, by the way, the increase in improper payments
continues to rise.
And here is the kicker. Mr. Hurt, your boss, the guy we
asked to come, Mr. Runcie. You know Mr. Runcie, Mr. Hurt? Do
you know a Mr. Runcie?
Mr. Hurt. Yes, sir.
Mr. Jordan. Yes, and he was your boss?
Mr. Hurt. Yes, sir.
Mr. Jordan. Yes. And he was asked several times to come in
front of this committee and talk about this situation. Is that
true?
Mr. Hurt. Yes.
Mr. Jordan. Yes. And instead of coming in front of this
committee, what did Mr. Runcie decide to do? Do you know?
Mr. Hurt. Mr. Runcie resigned.
Mr. Jordan. Resigned, yes, the night before, right, he is
supposed to come. It is the night before we were going to send
him a subpoena he decided to resign. Do you know why he would
do that, Mr. Hurt?
Mr. Hurt. I can't speculate for Mr. Runcie.
Mr. Jordan. How about you, Ms. Tighe? Do you know why he
might do that?
Ms. Tighe. I do not know.
Mr. Jordan. Mr. Hurt, did Mr. Runcie receive any bonus
payments over the last few years for his stellar job of not
complying with two Federal laws, improper payments that
continue to increase and have increased over the last three
years? Did he receive any bonus payments for his job
performance?
Mr. Hurt. I think the chairman referenced bonus payments. I
personally don't have--I'm not involved in Mr. Runcie's
bonuses.
Mr. Jordan. Yes. Ms. Tighe, did he get some bonus payments?
Ms. Tighe. I'm not aware of Mr. Runcie's bonus payments
either. I'm sorry.
Mr. Jordan. Yes. Well, it is our understanding that there
were several thousand--last year alone $75,000 bonus. Ms.
Tighe, do you know if Mr. Runcie was at the top of the Federal
pay scale?
Ms. Tighe. I do not know that.
Mr. Jordan. Yes. My guess he was at the top of the Federal
pay scale, got his $75,000 bonus last year, and over the last
six years, bonuses totaling $432,815 for a guy who can't comply
with two laws, it asked to come testify in front of this
committee, and instead of coming to testify in this committee
to answer for what took place at the Department of Education,
one of the most egregious agencies in overpayments or improper
payments, instead of doing all that, he just decides to resign
on the spot. Man, no wonder the American taxpayers are fed up
with our Federal Government and the way this place operates.
I think, Mr. Chairman, we should have Mr. Runcie in here. I
think we should go ahead and subpoena the guy and bring him in
here to answer some of these questions. I mean, again, you just
walk through it, $144 billion across government, the agency
that is maybe one of the most egregious offenders of
overpayments is the Department of Education, two laws they
don't comply with. That trend is going up. The who is
responsible is asked several times to come in front of this
committee, and instead of coming in front of this committee, he
up and resigns. And to add insult to injury, he has been
receiving bonus payments the last six years that total
$432,815. This is amazing. This is why we have this committee,
to get to the bottom of these kind of things. But Mr. Runcie
should be in front of the committee.
And frankly, whoever was responsible--my guess it was Mr.
Duncan who was responsible ultimately, the former Secretary of
Education, in allowing these bonus payments to be given to Mr.
Runcie, should be in front of this committee as well and say
why was he given this kind of bonus, taxpayer dollars, when
there is billions of taxpayer dollars that go unaccounted for
that are under his watch.
So, Mr. Chairman, with that, I would yield back the balance
of my time.
Mr. Meadows. I thank the gentleman.
Mr. Hurt, let me follow up one quick question. I mean,
don't you think Mr. Runcie could have illuminated some of the
questions that you have been unable to answer today? Do you
think he would be the appropriate person to answer some of
these questions?
Mr. Hurt. Chairman Meadows, I can't speak to ----
Mr. Meadows. But don't you work for him?
Mr. Hurt. I did.
Mr. Meadows. Okay. So wouldn't he have some knowledge of
improper payments?
Mr. Hurt. He would have some knowledge.
Mr. Meadows. It is a softball question, Mr. Hurt.
Mr. Hurt. Yes, sir.
Mr. Meadows. I am not trying to trap you.
Mr. Hurt. He would have some knowledge of improper
payments.
Mr. Meadows. And so shouldn't he have some I guess
responsibility to come before Congress and help us understand
why the record is so deplorable?
Mr. Hurt. That's for Mr. Runcie to answer, not me.
Mr. Meadows. No, I am asking you. You are the sworn
witness. Don't you think he could have helped?
Mr. Hurt. That's for Mr. Runcie to answer, Mr. Chairman.
Mr. Jordan. Mr. Chairman?
Mr. Meadows. Yes?
Mr. Jordan. Mr. Runcie has been able to go out and talk to
the press. He can't talk to a congressional committee with
oversight responsibilities for the very fact he is allowed all
kinds of billions of dollars of improper payments ----
Mr. Meadows. Well ----
Mr. Jordan.--to go out but he can talk to the press. He
can't come talk to us? That is why we need to subpoena the guy.
Mr. Meadows. Well, we have votes, and so I am going to give
you about 30 minutes to think of a better answer, Mr. Hurt,
okay, because I am going to come back to that. We were going to
adjourn, but at this point we are going to just recess subject
to the call of the chair. And for planning purposes so you can
get some additional tea, Ms. Tighe, we are looking at about 30
minutes. So the committee stands in recess.
[Recess.]
Mr. Meadows. The subcommittees will come back to order.
Thank you so much for your flexibility. I appreciate you coming
here.
The chair recognizes the gentleman from Wisconsin, Mr.
Grothman, for five minutes.
Mr. Grothman. Thanks. Mr. Hurt, I would like to ask you a
couple questions. Your annual financial report stated,
``Recovery audits to recapture improper payments would not be
cost-effective.'' Why did you decide to exclude these audits
from your payment recapture program? It would seem to be fairly
obviously you would want to use them. Do you have a comment on
that?
Mr. Hurt. A few years ago, Congressman Grothman, we did
actually--the Department actually used a recovery audit,
attempted a recovery audit, and we eventually--the Department
abandoned it because it was finding so little. It was focused
on the contract, contract management or contract management
activities.
Mr. Grothman. When there are overpayments, give me a
typical example of an overpayment. How is an overpayment made?
Give me a ----
Mr. Hurt. Overpayments might occur in, let's say, the loan
consolidation process. So when someone--when I say I want to
consolidate my loans, I'm going to consolidate them on the 10th
of March. If I end up consolidating on the 12th of March, then
I will have--but if I don't consolidate on the exact day, I
could--that could result in an overpayment or an underpayment
based on the timing of when the actual consolidation occurred.
Mr. Grothman. We are talking about $120 million a year. I
would think that is a relatively small amount. When I look at
this graph here that says $120 million a year in overpayments,
give me a typical example of how you work your way up to $120
million. Or, Mrs. Tighe, you can weigh in if the answer is not
satisfactory.
Mr. Hurt. Most of the overpayments--the most significant
root cause for overpayments is actually issues around
eligibility. That could be misreported income on the FAFSA or
misreported data on the FAFSA. That's usually the--probably the
most impactful or the biggest root cause for improper payments.
Mr. Grothman. And right now, looking--by the way, Ms.
Tighe, do you agree with that or do you have anything to add?
Ms. Tighe. I'm sorry. Excuse me?
Mr. Grothman. Do you agree with that or do you have
anything to add?
Ms. Tighe. No. Well, I agree that the largest--or one of
the two largest drivers of improper payments for Federal
Student Aid is eligibility issues, misreported income. And
that's why we made a recommendation that they needed to include
information related to that in the improper payments
calculation.
Mr. Grothman. Do you ever catch people who are getting, you
know, two different forms of aid, you are not supposed to get
them both at the same time? Is that ever a problem?
Ms. Tighe. Well, we catch people getting all sorts of aid
they shouldn't be getting. That's been looking at issues like
our fraud rings where people are getting Pell Grants and
student--and Direct Loan disbursements that they are not
entitled to has been an active part of our criminal caseload.
Mr. Grothman. Did you ever convict anybody?
Ms. Tighe. Yes, we do.
Mr. Grothman. What happens to them?
Ms. Tighe. Well, they go to jail.
Mr. Grothman. Oh, wow. Okay.
Ms. Tighe. And sometimes pay the money back.
Mr. Grothman. Okay. Good. I notice here, you know, it
varies from year to year but usually the amount paid back from
the amount identified is, you know, not that great. I mean, one
year we did better but it seems a lot of times most recently it
is under 20 percent. Do you want to comment on that? I mean, is
there a way you can dial that up a little bit or what is your
opinion on that, getting less than 20 percent of what we
identify--and I assume we identify only a fraction of what is
done.
Mr. Hurt. I think you are referring to the $120 million in
the AFR of assessed liability. Is that--if that's true, then
these are actual improper payments we identified during our
program reviews, our compliance audits, or the IG's audits. We
will assess a liability to whomever the bad actor--or the
individual or school in some cases that is due to pay us back,
and then we'll collect on that.
Mr. Grothman. Is it usually the school or the student?
Probably usually the student?
Mr. Hurt. I don't have the data ----
Mr. Grothman. Or sometimes the school? Sometimes the
school, too, is at fault?
Mr. Hurt. There are times when the--I better let the
inspector general speak to school.
Ms. Tighe. Well, we do audits sometimes on compliance with
the title IV requirements, and we do see schools that may not
be complying with the regulations properly and disbursing money
properly or returning the money properly, and that incurs a
liability to the Department.
Mr. Grothman. Okay. And I will go back. The most recent
year here you say identified $119 million and recovered $20
million, 17 percent recovery rate. Do you just want to comment
on that? I mean, are you just with young people who don't have
money? What do you do to put a lien on them or what is going on
there?
Mr. Hurt. It's treated as a receivable, and we will employ
many tools to collect. And it will--that's how much has been
recovered thus far is another way to look at that, too. So we
will employ a number of Treasury--alternatives would be
treasury offset against their--whatever--any payments that are
coming out of Treasury. That could be IRS tax refunds, things
like that. We will employ administrative wage garnishment,
other tools mostly through Treasury to collect on that money.
Mr. Grothman. Okay. Thank you very much.
Mr. Meadows. I thank the gentleman.
The chair recognizes himself for a series of questions.
So, Ms. Tighe, let me come back to you. You had talked
about how people need to be prosecuted earlier, you know, in
terms of when we find these things. I mean, how do we go about
this? I mean, have we prosecuted many?
Ms. Tighe. Well, I mean, we have prosecutions all the time.
I mean, we have right now about 250--over 250 active criminal
investigations.
Mr. Meadows. Right.
Ms. Tighe. About 60 percent of those relate to the Federal
Student Aid operations and programs. I think that we certainly
see, you know, the big areas for us within that. The fraud
rings, we talked about that and we do see prosecutions. But
sometimes the dollar levels on those don't justify me spending
the resources, so we end up referring those to the Federal
Student Aid to take administrative action. But we do see
prosecutions ----
Mr. Meadows. So do they take the appropriate action?
Ms. Tighe. I know that they have been following up on some.
I would--I am not ----
Mr. Meadows. On a scale of 1 to 10 with 10 being the most
appropriate, how would you rate their actions?
Ms. Tighe. Well, I think I'd have to give a different scale
because I'm not sure what they're doing with our referrals, and
I think it's something ----
Mr. Meadows. Well, since we are talking about education --
--
Ms. Tighe.--we need to sit down with ----
Mr. Meadows. If you are going to talk about education, give
them a letter grade A through F.
Ms. Tighe. Well, I will give them the grade of I am not
sure. I know that they have taken some action on some of the --
--
Mr. Meadows. So do you not see it being a problem if the
inspector general is not sure? Does that mean that you don't
have enough information ----
Ms. Tighe. I don't have enough information. It's actually
an area I've been wanting to sit down and talk to FSA about.
Mr. Meadows. All right. So if it is an area that you want
to talk to FSA about, and since it was made very clear earlier
today that all of these problems apparently are the problems of
Ms. DeVos, would you agree with that?
Ms. Tighe. Well, no, this is--I think the issues related to
referrals of ----
Mr. Meadows. Didn't they happen before she was even
confirmed ----
Ms. Tighe. Yes.
Mr. Meadows.--into her position. All right. Let's be clear
about what it is and what it is not because it is very easy for
us to start to go after a new Secretary who--all of these
things that you are talking about I don't know that even we had
President Trump in the White House at that point when you were
identifying these areas of concern, did we?
Ms. Tighe. No.
Mr. Meadows. All right. So if we are looking backwards and
we are looking at these issues, tell me about program review
and where we are in terms of you being able to make a good
analysis. Do we have good audits? Do we have what we need
there?
Ms. Tighe. We did do a review a couple of years ago, I
believe in 2015, that found a number of issues related to the
program review process.
Mr. Meadows. And Mr. Runcie got right on those and fixed
them all, did he not?
Ms. Tighe. Well, they did do a couple of things. They did
implement a quality kind of assurance process where they
reviewed--the program reviews themselves ----
Mr. Meadows. All right. So they did quality assurance ----
Ms. Tighe. The problem was ----
Mr. Meadows. Since we are talking about improper payments
----
Ms. Tighe. Yes.
Mr. Meadows.--quality assurance, I guess that is why the
Direct Loan Program went from $1.28 billion up to $3.86 billion
in improper payments, and the Pell Grant Program went from $562
million to $2.2 billion because we put in additional quality
assurance.
Ms. Tighe. Well, no, I don't think that's the reason. The
issue we had, which I should explain, with the quality
assurance process was that they had recommendations for
improvement but they didn't require the managers to take
action. And that was one of the findings in our report.
Mr. Meadows. So they would make recommendations but they
wouldn't have to act on those recommendations?
Ms. Tighe. Well, at that point we were looking at it they
did not have a process in place to act on them, no.
Mr. Meadows. Do they now?
Ms. Tighe. I would have to get back and check on that. As
part of our audit resolution process, I am not sure what the
status of that recommendation is.
Mr. Meadows. Would you say that as part of your audits
there is a whole lot of outstanding issues that still need to
be made?
Ms. Tighe. Yes, that's fair to say.
Mr. Meadows. All right. So on a scale of 1 to 10--I will
give you a different one. On a scale of 1 to 10, how much work
is left to be done to satisfy those outstanding issues with 10
being the most amount of work and 1 being hardly any?
Ms. Tighe. Well, I'd say, you know, they're at a 5. They've
done some work to--trying to resolve some of our audits in the
past year, but there are still some ways to go.
Mr. Meadows. All right. So this is a performance-based
organization, is it not, a PBO?
Ms. Tighe. Yes, it is.
Mr. Meadows. All right. So that means compensation is
directly related to performance?
Ms. Tighe. As I understand it, yes.
Mr. Meadows. Okay. So let me ask it a different way.
Compensation should be directly related to performance?
Ms. Tighe. Yes.
Mr. Meadows. So have you seen any correlation between the
compensation and the performance? Because I cannot find any.
And so I am just trying to get to the facts here.
Ms. Tighe. I am not privy to compensation, knowledge about
the senior leadership of those ----
Mr. Meadows. So if you are not, how do you properly
oversee--if we are a performance-based organization, how would
you properly oversee whether we are actually doing that or not?
Ms. Tighe. Well, we do look at a number of issues related
to FSA, and we've made a number of recommendations ----
Mr. Meadows. So who is overseeing that?
Ms. Tighe.--for improvement.
Mr. Meadows. Is that you, Mr. Hurt? Are you overseeing
whether people get the proper compensation based on
performance?
Mr. Hurt. No. Performance ----
Mr. Meadows. I didn't think so. So who is?
Mr. Hurt. The performance evaluations for the chief
operating officer would be determined by the Department senior
leadership, and then within the Federal Student Aid,
performance is evaluated and awarded based on a process
consistent with the Department's award process but done by the
operating committee essentially ----
Mr. Meadows. All right.
Mr. Hurt.--at FSA.
Mr. Meadows. Maybe I am confused, but what the heck does
that mean? I mean, I don't understand how--if I am going to
explain that to the American people, when you say ``consistent
with other things,'' why would a COO get a bonus of $75K last
year when your improper payments went through the roof?
Mr. Hurt. I can't speak towards the ----
Mr. Meadows. Did you get a bonus?
Mr. Hurt. I did, sir.
Mr. Meadows. Performance bonus?
Mr. Hurt. Yes.
Mr. Meadows. So Mr. Runcie said that improper payments are
all your responsibility. Is he accurate with that?
Mr. Hurt. I am the program accountable official for
improper payments related to ----
Mr. Meadows. So why did you get a bonus then paid to you
based on these what I would call abysmal results?
Mr. Hurt. I think the results are based on the--it's an
estimate that's based--that's published in the AFR, and the
estimate is--it essentially went up because of a changed
methodology, inclusion of more root causes in the methodology
----
Mr. Meadows. So you are saying it is just we started
reporting it better and it is not really any worse?
Mr. Hurt. I'd say we're ----
Mr. Meadows. You are under sworn testimony. And let me tell
you, you are talking to a guy that looks at the numbers and I
am going to go back and look at them. So are you saying the
improper payments are no worse today in fiscal year 2016 than
they were in fiscal year 2015?
Mr. Hurt. I'm saying the rates went up based on a change to
methodology and based on the inherent variability of the
methodology. So the methodology--because we focus our funds and
our resources on high-risk program reviews, we don't have
sufficient randomly sampled numbers of reviews and audits to be
able to produce a statistically valid estimate. We would have
to make a management decision to divert our resources from
going after improper payments and assessing liabilities to
coming up with a better estimate to do that.
Mr. Meadows. So what you are saying is you would have to
take time to figure out how to measure if you are doing a good
job or not?
Mr. Hurt. We'd have to take money away from finding
improper payments to be able to produce a better estimate.
Mr. Meadows. All right. And so would you say that having
7.85 percent of improper payments in the Pell Grant program is
a good job?
Mr. Hurt. I say 7.85 percent improper--improper payment
rate, anything above zero is something we should be striving to
bring down.
Mr. Meadows. Great answer to a question I didn't ask. I am
asking you is 7.85 improper payment rate a good job, Mr. Hurt?
Mr. Hurt. The blended rate, if you look at both Pell and
Direct Loan, was 4.85.
Mr. Meadows. And so are you saying 4.85 is good?
Mr. Hurt. Four-point-eight-five compared to the--the
industry estimates they lose about 5 percent to fraud, which is
a much narrower ----
Mr. Meadows. What industry?
Mr. Hurt. Private industry. So the American Certified Fraud
----
Mr. Meadows. Mr. Hurt, let me just tell you, I told you I
would try to go easy on you and I am going to go easy on you,
but you are going to have to answer my question. Are you
willing to answer my question?
Mr. Hurt. Yes, sir.
Mr. Meadows. All right. Is 7.85 a good number or a bad
number, yes or no? Just tell me what it is, good or bad?
Mr. Hurt. It's a number we need to address for sure.
Mr. Meadows. We are going to wait until you answer it. Is
it a good number or a bad number?
Mr. Hurt. It's a bad number.
Mr. Meadows. All right. If it is a bad number, at what
point is it a good number where Inspector General Tighe can
applaud you and say this is great?
Mr. Hurt. The only way to produce a statistically accurate
number is to divert our resources from finding--actually
finding improper payment and bringing down the real amount of
improper payments to producing a more valid estimate.
Mr. Meadows. All right. Justin, will you--maybe you can
help me see how the PBO is working or not working, Mr. Draeger,
if you can help us maybe have a little clarity here.
Mr. Draeger. So from our perspective, Mr. Palmer asked
earlier about the metrics that FSA did not meet when it laid
out its strategic objectives. And I would say the answer is
pretty simple. The objectives they did not meet, at least two
of the three were focused solely on customer service and
stakeholder engagement.
And so I think one of the underlying issues with a
performance-based organization--and FSA was the first
performance-based organization in 1998--we benchmarked other
performance-based organizations that have been created since
then, and they have a unique quality that is just lacking at
FSA which are a specific oversight board. And if you are going
to give a Federal agency private sector flexibility, then some
of the private sector oversight needs to be there. And when you
look at the other Federal PBOs, they have that in place. So I
think it's a lot easier when you have a board in place that's
helping align your strategic objectives to overall strategy to
determine whether you're successful or not.
Mr. Meadows. So what is wrong with what he said, Mr. Hurt?
Mr. Hurt. FSA currently has oversight from many oversight
bodies.
Mr. Meadows. Apparently not enough, but go ahead.
Mr. Hurt. We have oversight from the senior--Department
senior management, from Office of Management and Budget, from
Domestic Policy Council, from the inspector general, from
multiple congressional oversight committees. So adding another
layer of oversight would actually further--well, it would
further confuse the oversight picture relative to private
companies.
Mr. Meadows. Mr. Hurt, so let me be clear. We are going to
get to the bottom of this, and we are going to get it right.
The American taxpayer and quite frankly students all across
this country deserve to get it right. And, you know, you are
sitting here today and Mr. Draeger just pointed out some things
and I think there are two customer service matrices that are
out there, and you are failing on both of them. So, I mean,
when we really look at it--so your sworn testimony here today
is that these abysmal reviews and the fact that you are not
doing enough about improper payments are all a result of too
much oversight?
Mr. Hurt. No.
Mr. Meadows. Well, I mean, that is kind of where you were
going. You said you got all this oversight, and so are you
suggesting that we just need to pull back on a little bit of
oversight so the improper payments go down?
Mr. Hurt. No, Chairman Meadows. My statement was in
response to do we need another oversight board. That was the
question I was answering.
Mr. Meadows. All right. So at what point do you find Mr.
Draeger's constituency satisfied from a customer service point
of view? I mean, does it matter whether they are satisfied from
a customer service point of view?
Mr. Hurt. It matters that our partners in delivering
financial aid to our student and borrower customers and
taxpayer customers ----
Mr. Meadows. So his constituency would give you what kind
of a grade?
Mr. Hurt. I believe actually that was one of our failing
metrics out of three was ----
Mr. Meadows. So he gave you an F?
Mr. Hurt. The--I don't--it's a number based--it wasn't
necessarily an F. It was a number-based metric, sir.
Mr. Meadows. Okay. Was it below 60?
Mr. Hurt. Specifically, it was--our goal was to have a 74.3
to 77.3 ease of doing business, and we received a 72.3.
Mr. Meadows. Okay. So a C minus depending on which grade
scale you get to. So how are you going to get it up to where it
needs to be?
Mr. Hurt. We have numerous ways to interact with our
consumer advocacy groups and our schools. We--a great example
is the FAFSA Advisory Board that we--every year we're doing --
--
Mr. Meadows. So you are saying that that interrelationship
is going pretty well?
Mr. Hurt. I'm saying we have mechanisms to continue and
then improve upon our relationship.
Mr. Meadows. Okay. So, Mr. Draeger, would you say that the
program reviews are going well, or do you consider those
adversarial?
Mr. Draeger. We asked our members that question a year ago
in a survey. We received 1,000 institutional responses. Of
those who had had a program review in the last five years, 30
percent had reported that when--from the time they had their
program reviewed, they did not have a final report in hand 12
months later. So if the goal is to correct improper payments
but these just continue to hang out there and hang out there,
schools feel like they're under tremendous pressure with this
perpetually hanging ax over institutional eligibility.
We asked our members also in one word to describe their
relationship with the Department of Education at the time, and
I know that this wasn't under Mr. Hurt's leadership, but the
words most cited were adversarial, adversarial, complicated,
and 90 percent of the words that they provided were negative,
not positive. And again, not under Mr. Hurt's leadership, but I
do want to point out that since that hearing in October ----
Mr. Meadows. November of 2015.
Mr. Draeger.--of 2015 ----
Mr. Meadows. I was here.
Mr. Draeger.--Mr. Runcie refused to take meetings with
myself or my board of directors who are acting financial aid
administrators.
Mr. Meadows. Hold on. You are saying that he left a hearing
where he said that he was willing to address this and that he
has refused to take any meetings with you? Is that your sworn
testimony?
Mr. Draeger. While the career staff at FSA have continued
to enter dialogues, the Secretary's office in both
administrations continued dialogue, the Under Secretary's
Office continued dialogue, we specifically requested meetings
with the chief operating officer, which ----
Mr. Meadows. Well, I appreciate you sharing that because,
Mr. Hurt, this is only partially on your watch. And I talked to
Secretary DeVos yesterday because I was real concerned about
students and making sure that students have what they need
because really that is what this is all about. You don't even
exist if we are not providing the kind of service to students
that they deserve. And really, your having to come here in the
last 24 hours with very little notice is a disservice to you,
it is a disservice to those students.
And what I guess is more appalling to me is that Mr. Runcie
decided to not come back, has not met with Mr. Draeger when you
have Secretaries of both administrations willing to do that,
and then wants to avoid follow-up questions, some of which I
know I asked personally of him back in November of 2015, some
of which Inspector General Tighe has identified over and over
and over again, and for him to suggest that it is all your
fault or all Secretary DeVos' fault, you can't agree with that
statement, do you, that it is all your fault or Secretary
DeVos' fault?
Mr. Hurt. I couldn't speak for what Mr. ----
Mr. Meadows. Now, I have given you 40 minutes to come up
with a better answer, Mr. Hurt, and I am sure you have talked
to counsel, I am sure you have talked to everybody else, and
they may not want you to say anything, but I would remind you
you are under sworn testimony. We can compel you to answer the
questions. So at this point is it totally your responsibility
for what has happened on improper payments, totally and
completely?
Mr. Hurt. I am the program accountable official for direct
----
Mr. Meadows. Great answer to a question I didn't ask again,
Mr. Hurt. You are making this more difficult than you need to
be. Is 100 percent of the responsibility yours, Mr. Hurt?
Mr. Hurt. No, sir.
Mr. Meadows. All right. Is 100 percent of it Secretary
DeVos'?
Mr. Hurt. No, sir.
Mr. Meadows. So if that is the case, and we understand--and
I agree with that--that 100 percent of it is not your fault,
how do we fix it? How do we fix this problem where I am not
coming back here with unbelievable billions of dollars,
customer service reports that are not there, an inspector
general's request for a number of things--which I understand
she gave you a little bit of a pass because apparently in the
last few days you have agreed to do that so I would assume that
there is a new sheriff in town and so they are going to get it
done. How do we make sure that this doesn't happen?
Mr. Hurt. We stay vigilant on oversight, sir.
Mr. Meadows. All right. So what is success going forward?
So let me put it more bluntly. If you are going to get a
performance bonus, at what number do we peg that to?
Mr. Hurt. It's hard to peg it for improper payments to a
number of ----
Mr. Meadows. Well, it is not hard for the American people.
The American people said if you lose over $3 billion, they
would think that you should get a zero performance bonus. And I
know that you don't agree with that, but at some point we are
going to have to get to the bottom line, you know, and figure
this out. So what is the number?
Mr. Hurt. The estimate is variable based on the methodology
so I can't come up with ----
Mr. Meadows. Okay. Here is ----
Mr. Hurt.--a number, sir.
Mr. Meadows. Since we do have oversight capability, here is
what I need from you, and I need you to take this back to the
Secretary and make sure that we get it. We need to know the
matrix for what performance, good performance, excellence
performance, and poor performance is going to be for your
senior management, for the new COO, whomever that maybe, for
yourself, for the others, and we need to understand what the
matrix is. We need to understand where customer services comes
in and what it factors in with that as well. And if I ever hear
about government officials not being willing to meet with key
stakeholders because they are too busy collecting their check--
you know, there was a song in the '70s. You know, I am dating
myself. But it seems like that Mr. Runcie could be singing a
song ``Take the Money and Run'' because that is what he has
done and that is what the American taxpayers have seen it as,
as an irresponsible way to hold government accountable for
their actions.
Now, I am not asking you to comment on that, but here is
what I am asking you to do. We need to know when you are going
to get the inspector general's recommendations done, a time
frame, a specific time frame on what you are going to
accomplish and how you are going to accomplish it. What is a
reasonable amount of time to get that plan back to this
committee?
Mr. Hurt. The--I think there is a specific amount of time
for us to develop our corrective action. I think that is coming
due within a few months.
Mr. Meadows. That is with her. I am saying a plan of action
to this committee. Is 45 days enough to get a plan of action on
how you are going to address that back to this committee?
Mr. Hurt. Yes, sir.
Mr. Meadows. All right. I see heads nodding in the back. I
don't want to make a request that is too difficult, okay? All
right. So we are going to do that.
Mr. Meadows. The other part of that is is that--and I don't
think you are going to get much resistance on this. We need to
know what the performance matrices are and how we know when we
are doing a great job, a good job, a mediocre job, and a poor
job. And we need to make sure that compensation, since it is a
PBO, is tied to that.
And then lastly, I want to see how you pull in some of the
comments. The next time I don't want to have 90 percent of the
comments coming back negative. You don't either, do you, Mr.
Hurt?
Mr. Hurt. No, sir.
Mr. Meadows. I didn't think so. All right. So Inspector
General Tighe, I am going to close with this. I need you to
help prioritize the recommendations you have made in terms of
those open issues that are there from previous reports. It is
critically important that we communicate those at the very top
level with the Secretary and those that are going to implement
it.
Any change of administration there can be a drop of a baton
so to speak. I don't want that to happen so I am asking you if
you would get that to this committee as well.
Ms. Tighe. Yes, we will.
Mr. Meadows. Is 45 days enough for you?
Ms. Tighe. Yes, it is.
Mr. Meadows. Okay. We will do that and go there.
Mr. Meadows. Lastly, I think it is appropriate for me to
say, Mr. Hurt, I am not blaming you for this, but you are
partially responsible. And in doing that, I am going to be
myopically focused on results, all right? My favorite quote is
``No matter how beautiful the strategy, we must occasionally
look at the results.'' So I don't want to hear about the great
plan. I want to see about the results because I don't want to
have another hearing like this, or if we have another hearing,
I want us to be talking about and celebrating the successes
that we have. Does that make sense to all of you? Do you think
we can do that? Do I have your commitment to work diligently to
do that?
Yes. Let the record reflect that all witnesses answered in
the affirmative.
That being said, thank you so much. The committee stands
adjourned.
[Whereupon, at 12:35 p.m., the subcommittees were
adjourned.]
[all]