[Congressional Record Volume 146, Number 72 (Monday, June 12, 2000)]
[House]
[Pages H4178-H4181]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            REQUIRING FRAUD AUDIT OF DEPARTMENT OF EDUCATION

  Mr. HOEKSTRA. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 4079) to require the Comptroller General of the United 
States to conduct a comprehensive fraud audit of the Department of 
Education, as amended.
  The Clerk read as follows:

                               H.R. 4079

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. COMPREHENSIVE FRAUD AUDIT OF DEPARTMENT OF 
                   EDUCATION.

       (a) Audit.--Within 6 months after the date of the enactment 
     of this Act, the Comptroller General of the United States 
     shall--
       (1) conduct and complete a fraud audit of selected accounts 
     at the Department of Education that the Comptroller General 
     determines to be particularly susceptible to waste, fraud, 
     and abuse; and
       (2) submit a report setting forth the results of the audit 
     to the Committee on Education and the Workforce of the House 
     of Representatives and the Committee on Health, Education, 
     Labor and Pensions of the Senate.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Michigan (Mr. Hoekstra) and the gentleman from Wisconsin (Mr. Kind) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Michigan (Mr. Hoekstra).


                             General Leave

  Mr. HOEKSTRA. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days in which to revise and extend their remarks 
on H.R. 4079.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Michigan?
  There was no objection.
  Mr. HOEKSTRA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, H.R. 4079 is a bill that in many ways we would probably 
rather not be dealing with today. We are dealing with this issue 
because of the Department of Education's inability to receive a clean 
audit. Each year, the Department of Education, like other Federal 
agencies, is required to undergo an audit. For fiscal years 1998 and 
1999, the Department of Education could not receive a clean audit 
opinion. In plain English what that means is that the financial 
analysts who have gone in and taken a look at the books as prepared by 
the Department of Education do not have a high degree of confidence 
that the figures and the numbers that are reported in their financial 
statements are an accurate reflection of the actual conditions at the 
Department of Education.
  Now, there are a number of reasons why this has occurred. There are 
also a number of instances where this lack of financial control has 
exhibited itself. One of the reasons why the Department is unable to 
get a clean audit is that it lacks an accounting system that meets 
generally accepted standards or complies with Federal financial 
management standards. That is why it could not get a clean set of books 
for the last 2 years.
  The disappointing thing here, and I think this is why we need to take 
this step today, is that the Department also does not expect to have an 
effective account system in place until at least October 2001, more 
than a year out. Thus, the fiscal year 2000 and 2001 audits will most 
likely result in the same results as 1998 and 1999, an inability to get 
a clean audit.
  Now, it would be one thing just to say they cannot get a clean set of 
books. It is another when the General Accounting Office and other 
groups have identified that because of the weaknesses within the 
financial control system, this Department has experienced a number of 
cases of waste, fraud, and abuse.
  Let me just highlight a couple of these. The Inspector General and 
the General Accounting Office have identified a number of examples. One 
is that the Department over the last 2 years has issued about $175 
million in duplicate payments to grantees. These payments continue to 
occur despite the Department's avowed attempts to crack down on them.
  What is a duplicate payment? Well, we have here a list of duplicate 
payments that occurred in October of 1999.

[[Page H4179]]

 What a duplicate payment is, is that it means the Department 
recognizes that it has a liability, that it owes a State, it owes a 
contractor, or a supplier a certain amount of money, it cuts a check 
and it pays them. A duplicate payment means that it cuts a check and 
pays them again.
  This is to the tune of over $175 million of duplicate payments, one 
as large as $71,425,000 that occurred on 10/20/1999. As I said, these 
payments have continued through 2000. So that is one area that the 
Inspector General and the GAO have said this is perhaps an area that we 
need to take an additional look at. Why? We need to identify whether, 
number one, we have captured all of the duplicate payments and we have 
identified all the contractors or suppliers who have received a 
duplicate payment. If not, let us find them.
  The second thing we need to do is we need to identify whether for all 
of the duplicate payments that have been made, whether the American 
taxpayer and the Federal Government have been reimbursed for this 
duplicate payment. And then, thirdly, we need the General Accounting 
Office to go in and identify the problems that the Department of 
Education has in their system that allows this problem to continue on 
for 2 years.
  So this is not a single occurrence. This is a series of occurrences 
over a period of 2 years that have resulted in over $175 million in 
duplicate payments.

                              {time}  1415

  Last month, a contract employee at the Department became the second 
person to plead guilty in participating in a theft ring. This is, 
again, disturbing because this builds off of recommendations that were 
not followed in previous audits. Previous audits, previous work by the 
Inspector General and by the General Accounting Office had indicated 
that the Department of Education did not have an effective way of 
managing its inventory, meaning that it would go out and buy capital 
assets, but had no way of tracking what assets were purchased and the 
location of each of those assets.
  The result is, that with a lack of a good system in place, we created 
an environment where employees understood that there was a lack of 
these controls in place and, actually, created an environment that 
became inviting for waste, fraud and, in this case, abuse and fraud. 
Because what happened is that this Department of Education employee, 
along with outside contractors, and there are still additional people 
that are being investigated in this process, they put in place, we will 
use the word that is kind of in vogue today, they used a scheme to 
defraud the Department of close to a million dollars.
  The scheme worked like this: someone within the purchasing department 
at the Department of Education would issue requisitions for certain 
kinds of equipment, and, in this case, it included computers. It 
included telephone equipment. It included a 61-inch TV, that is one big 
TV, and a whole series of other electronic equipment.
  They would issue the requisition, the equipment would be purchased, 
and it would be delivered somewhere other than the Department of 
Education, perhaps to the employee's home or other locations ensuring 
that the equipment never came to the Department of Education. Roughly 
$330,000 worth of equipment was defrauded from the Department through 
this mechanism.
  Now, these purchase orders were supplied to an outside contractor. 
What was then in it for the outside contractor? The benefit to the 
outside contractor was that this outside contractor would be allowed 
and the purchasing agent would approve for the billing of hourly work 
and overtime by this outside contractor.
  It is estimated that in this case close to $600,000 in phony overtime 
was paid to this and other outside contractors. When we combine the 
fraud of purchasing this equipment and the overtime, we have close to a 
million dollars in fraud from the Department of Education.
  These are just two examples of why I think on a bipartisan basis we 
have recognized that when we are talking about some of the most 
important dollars that we spend in Washington today, those dollars that 
we invest in our young people, that we invest in our educational 
system, that when those are going into a Department we need to ensure 
that we have got the highest standards of integrity and accountability 
to make sure that those dollars are being spent where they will make a 
difference and that they are not being siphoned off through either 
waste and, in these cases, fraud and abuse.
  Mr. Speaker, I reserve the balance of my time.
  Mr. KIND. Mr. Speaker, I yield myself such time as I may consume.
  (Mr. KIND asked and was given permission to revise and extend his 
remarks.)
  Mr. KIND. Mr. Speaker, as a member of the Subcommittee on Oversight 
and Investigations, I, too, support this bill before us today that was 
voice voted with unanimous support out of the whole Committee on 
Education and the Workforce just recently, at the end of May.
  Just so our colleagues are clear, yes, there are problems at the 
Department of Education that we need to oversee, and I think this bill 
will address many of those issues. But the Department of Education is 
not the only agency that is having problems with audits and getting 
certified unqualified audits reported. In fact, at last count, we have 
10 agencies and probably 11 for fiscal year 1999 alone that have not 
been able to produce unqualified audit reports.
  We are not talking about an anomaly here in the Department of 
Education; but what I think is a whole scale problem that is affecting 
many, many different agencies within the Federal Government; and, 
hopefully, through the leadership of our committee and the oversight 
work that we have done here, it will encourage even greater oversight 
with many of these additional agencies, so we can get a clean, healthy 
book of record for all of the agencies that were responsible to the 
American taxpayer.
  Mr. Speaker, as it relates to the Department of Education, there has 
been proof that the Department has been defrauded by some employees or 
contractors as the gentleman from Michigan (Mr. Hoekstra) has 
indicated. While indictments and a conviction has been secured, in 
regards to the investigation at the Department, it is important that 
we, as the oversight body for the Department and its programs, ensure 
the security and safety of the Department's finances.
  The Subcommittee on Oversight and Investigations has held several 
hearings regarding the state of the Department's financial management 
systems, and we are very aware that the Department has had significant 
shortcomings in its audits over the last 5 or 6 years.
  While the Department of Education is just one of several Federal 
agencies that have been unable to obtain unqualified audit reports in 
recent years, we, as policymakers and the overseers, cannot take a 
relativistic attitude toward's Department audit shortcomings. We must 
set high standards for ourselves and the Department just as we do for 
the educators we are trying to assist through the Department programs.
  With that being said, I have been very encouraged by the Department 
of Education's response to its audit weaknesses in the last year or so 
especially. New staff at the Inspector General's office and the chief 
financial officer's office had helped motivate change and a greater 
degree of responsibility in regards to the books in the Department. The 
last audit was completed on time and with corrections to previous 
weaknesses.
  We on the subcommittee have been assured by the Department's new IG 
that the financial records will be produced in a timely and adequate 
manner for future audits. The electronic nightmare, which the 
Department has been living through with failing and faulty computer and 
accounting systems, should finally be corrected in the next 2 years, 
building more security and reliability in the overall financial system 
at the Department regarding outright fraud.
  At our last subcommittee hearing on the subject, I was told by both 
the Inspector General and the outside auditor after a specific question 
to them on this issue that there is no systematic fraud or abuse that 
they have been able to detect at the Department of Education.
  Obviously, again, as the gentleman from Michigan (Mr. Hoekstra) has

[[Page H4180]]

pointed out, instances of fraud have, nevertheless, occurred at the 
time of the hearing. We are aware of pending investigations, and it is 
very distressing that multiple cases of fraud have, in fact, taken 
place.
  Mr. Speaker, I also want to just take a moment and commend the 
subcommittee Chair in his realization in order to save taxpayer dollars 
that we are taking a more targeted fraud investigation approach to the 
audit requests contained in this bill today. I think it is a very 
reasonable and responsible approach to this.
  Accordingly, it is appropriate for us to demand a more probing audit 
specifically geared towards fraud detection and vulnerability at the 
Department. Ultimately, it is this committee's jurisdiction to 
authorize funding for the education programming that we expect will 
hopefully benefit the neediest of America's schools and children.
  We decide programs structure. We set relative priorities, and we are 
the first to berate the appropriators for underfunding our education 
authorization levels. Accordingly, we must also be the first to raise 
the alarm when management issues move from the realm of accounting 
weaknesses to direct fraud and abuse.
  I agree that a narrow, selective fraud investigation is warranted and 
should allow the Department to proceed with its financial management 
upgrades and security enhancements. Hopefully with this audit and the 
regular audits our subcommittee has been reviewing, we soon will see 
the promises of the Department and the Inspector General come to 
fruition. Hopefully, we will soon be able to focus on education policy 
with confidence and undivided attention, be able to move beyond just 
oversight and get to the bottom of some of the problems that exist at 
the Department of Education and pass important and meaningful education 
legislation that many of us were hoping to achieve this year.
  We still have yet to reauthorize the Elementary and Secondary 
Education Act, a vitally important program in order to improve the 
quality of education, especially for the most vulnerable and needy 
school children throughout our country. We have an Even Start Family 
Literacy bill that has passed the committee back in February, I 
believe, with wide bipartisan support under the leadership of the 
chairman of the committee, the gentleman from Pennsylvania (Mr. 
Goodling), and that has yet to see the light of day on the House floor.
  We are hoping to be able to move to that work as soon as possible, as 
well as some of the other unfinished education issues that are still 
pending before this Congress.
  Let's do a responsible job of providing appropriate oversight with 
the Department of Education but let's not also lose sight on the 
unfinished job of passing meaningful education legislation that is 
going to improve the quality of education that our Nation's children 
deserve.
  Mr. Speaker, I reserve the balance of my time.
  Mr. HOEKSTRA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I thank my colleague, the gentleman from Wisconsin (Mr. 
Kind) for his words and also his highlighting that hopefully some of 
the work that we have done on the subcommittee can perhaps be a 
stimulus for the House as a whole. We are currently in the process of 
drafting a piece of legislation where we apply the same standard to 
other Federal agencies that we have applied here to the Department of 
Education that says if, for 2 consecutive years, a Department or an 
agency cannot get a clean audit that it should be a fundamental 
requirement that a more in-depth analysis or a quote, unquote, a fraud 
audit or a targeted fraud audit should take place within these agencies 
because what we do know is that when an agency cannot deliver a clean 
audit, the auditors have some concern about their internal controls as 
to how they are measuring and recording the various expenditures. So 
the same standard that we apply to the Department of Education should 
apply to all of the other agencies that we have, whether it is the 
Department of Defense, the Department of Labor or whatever we are 
working on, and propose this one because of the work that the 
subcommittee has done in this area.
  Mr. Speaker, I also would like to thank my colleague, the gentleman 
from Wisconsin (Mr. Kind), because I agree with him the more time that 
we can spend on exploring educational policy and what is going on at 
the State and local level as to what works and what does not, the more 
effective we can be in spending the billions of dollars that we are 
allocating here at a Federal level so that we can move away from purely 
the measurement of where the dollars are going, but actually be taking 
a look at the effectiveness and are we getting the impact for the 
dollars that we would like to have.
  I have to applaud my colleague. I think we have been in 21 different 
States and had 23 field hearings, and my colleague consistently is 
there with us. He has been in New Mexico with us. He has been in 
Colorado with us. Last week he was in Minnesota. He has been in my 
district in Michigan; and consistently when we are at a State in a 
local level having a field hearing, he has been there and participating 
in that process to make sure that we are getting the best bang for our 
buck.
  The other thing that I would like to also say is that we have had a 
very good working relationship, developing a good working relationship 
with the new Inspector General and with the General Accounting Office. 
The General Accounting Office has completed an audit of the 
Department's grant back fund where there were some questions about how 
these dollars were being used and what was moving into the account and 
whether that was appropriate or not; and as a result of the work that 
they have done with us, I think, again, in a bipartisan way, the 
Department, I think, has returned over $700 million back to the 
Treasury.
  I think that is a very good, cooperative way of us moving through 
this process and dealing with this ugly side of the financial 
management part of the Department of Labor. I also think that as we 
move through this process in a more targeted approach, one of the ways 
that the Department or one of the areas that the Inspector General and 
the General Accounting Office have agreed with us that they will take a 
look at is the security of the computer data systems that the 
Department of Education maintains.
  These systems contain student loan and grant records for tens of 
millions of students, and what we want to do is we want to make sure 
that the safeguards are in place to maintain the integrity of these 
systems to make sure that no one can get into these files and either 
steal data or manipulate the data that are in these files.
  It is a wide-ranging effort that we have undertaken, and I think we 
have had good cooperation from both sides of the aisle as well as with 
the Department, with the Inspector General and also with the General 
Accounting Office to get to the bottom of these issues.
  Mr. Speaker, I reserve the balance of my time.
  Mr. KIND. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I thank my chairman of the subcommittee for his remarks 
and would be happy to be able to work with him and others who are 
drafting this legislation in order to form a stricter, higher standard 
of audit accountability in the rest of the agencies. I think that that 
is long overdue and the gentleman is heading in the right direction in 
drafting legislation for that very requirement.
  Again, I do not want our colleagues who are listening to this 
discussion today to be under some false impression that everything is 
wrong and bad and the Department of Education is breaking down and they 
are not actually accomplishing some very worthwhile goals and 
objectives over there, because they are. As I indicated, during the 
previous hearings that we have had on the Subcommittee on Oversight and 
Investigations, as well as other Education hearings, there is a lot of 
hope and promise that we are finally starting to turn the corner, as 
far as the quality of programming, more direction with the resources, 
emphasizing quality and accountability, rather than just expansion of 
programs.

                              {time}  1430

  So I think there are a lot of things you can point to and show 
definite progress and improvement at the Department of Education.
  I also feel that when the history books are written on this 
administration, we are going to be able to look

[[Page H4181]]

back on the Department of Education and the leadership which has been 
provided to it by Secretary Riley and realize we have had one of the 
most effective, brightest, hard-working, and thought-provoking and 
innovative Secretaries that our Nation has ever seen in Secretary 
Riley. So I hope people do not view this as a reflection on the work 
that he has done at the Department of Education. Because under his 
leadership there have been significant improvements overall at the 
Department of Education. I just want to highlight a couple of those 
that we have seen in recent years.
  The Education Department today has roughly two-thirds of the number 
of employees administering its programs since 1980, even though the 
budget has approximately doubled since then. The Education Department 
has trimmed its regulations by a third and reduced grant application 
paperwork and aggressively implemented waiver authority to legal 
roadblocks to State reform.
  The student loan default rate is now at a record low 8.8 percent 
after declining for 7 consecutive years. It was 22.4 percent when 
President Clinton took office, and, as a result, the taxpayers in this 
country have been saved billions of dollars.
  Collections on defaulted loans have more than tripled, from $1 
billion in fiscal year 1993 to over $3 billion in fiscal year 1999 
alone.
  The Direct Student Loan Program proposed by President Clinton in 1993 
and enacted by Congress in 1994 has saved taxpayers over $4 billion 
over the last 5 years.
  The creation of the National Student Loan Data System has allowed 
education officials to identify prior defaulters and thereby prevent 
the disbursement of as much as $1 billion in new grants and loans to 
ineligible students.
  The customer saving rates for ED Pubs, the Education Department's 
documents and distribution center, exceed those of premier corporations 
like Federal Express and Nordstrom.
  There are also signs that the quality of education is starting to 
turn the corner as well. We have higher academic standards and 
assessments being put in place throughout the 50 States, improvement in 
the Nation's reading scores in the three grades tested, and math scores 
are starting to show some improvement as well.
  Yes, there are some management problems that we are hopefully going 
to be able to get to the bottom of, and, with this legislation, sooner 
rather than later, but there are a lot of achievements and progress 
being made with the Department of Education and the programs they are 
responsible for that we shouldn't lose sight of even with the need for 
this legislation today.
  Mr. Speaker, I yield back the balance of my time.
  Mr. HOEKSTRA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I thank my colleague for working together on this issue. 
We have outlined some of the problems within the Department of 
Education. Hopefully through this effort, by having the General 
Accounting Office go in and take a more in-depth analysis, hopefully 
they will go in and they will not find additional fraud or abuse and 
they will find that the Department is operating appropriately. At this 
point in time, we just do not know. We have enough cases that indicate 
on a bipartisan basis that we need to go in for a closer look.
  This is a targeted approach. This is an approach that we can work 
with the General Accounting Office on and make sure that we are dealing 
with the appropriate issues at the right time and that we then can move 
on to the other things that my colleague from Wisconsin was alluding 
to, as to the effectiveness of the spending participating here in 
Washington, are we getting the maximum effect for the dollars we are 
spending.
  That will be a debate for another day, or hopefully that will be a 
debate or a process that we can build a bipartisan consensus as to the 
best way to move forward, empowering local officials and parents to 
make the decisions for the education of their children because that 
really is the leverage point, empowering parents and local officials to 
focus on basic academics, delivered in a safe and drug-free school, so 
that our children can get the best education of any kids in the world.
  I think that is a vision that we share on a bipartisan basis, at 
least getting the best education for our kids. We may have some 
disagreements as to what the best process is, but we have the same 
long-term goals and objectives in mind.
  Mr. GOODLING. Mr. Speaker, I rise in strong support of H.R. 4079, 
which requires the Comptroller General to conduct a fraud audit of 
selected accounts at the U.S. Department of Education. I want to thank 
Mr. Hoekstra for his work in bringing this bill to the floor.
  I note at the outset that this bill received the support of minority 
members of the Committee on Education and the Workforce at our full 
committee mark-up held a couple of weeks ago. Both majority and 
minority members of the Committee are aware of the serious financial 
management problems at the Department of Education. This awareness is 
due to the considerable time and effort the Subcommittee on Oversight 
and Investigations has spent assessing the agency's practices. Through 
its hearings, the Subcommittee found the department's operations and 
practices to be very susceptible to fraud and abuse.
  By way of background, I would note that Congress has increased 
federal education funding in recent years. The Labor-HHS-Education 
Appropriations bill for Fiscal Year 2001 provides $37.2 billion in 
discretionary spending for the Department of Education. The agency also 
currently manages a $100 billion direct student loan portfolio, a new 
banking function initiated by the Clinton Administration. I am 
concerned that the direct loan program is becoming a millstone around 
the neck of an agency struggling to handle its basic responsibilities.
  Recent reports of independent auditors have informed us that the 
Department neither practices sound fiscal management nor possesses an 
appropriate accounting system. The agency has yet to get its first 
clean audit opinion and is consistently cited by auditors for failings. 
These include an inability to reconcile its accounts with Treasury; 
failure to properly inventory its computers and other equipment; and an 
inability to safeguard effectively its computer systems from access by 
unauthorized users.
  Federal education dollars that should go to the classroom are instead 
going to buying television sets, computers and palm pilots for friends 
and relatives of Department of Education employees. Two individuals 
recently pleaded guilty to participating in such a scheme, which 
remains under investigation by the Justice Department. And this is only 
one in a series of abuses recently examined by the Subcommittee on 
Oversight and Investigation.
  We have tried as a Congress to improve the fiscal stewardship of the 
Department. When the 105th Congress wrote the Higher Education 
Amendments of 1998, it turned the Education Department's Office of 
Student Financial Assistance into the federal govenment's first 
performance-based organization.
  Mr. HOEKSTRA. Mr. Speaker, I have no further requests for time, and I 
yield back the balance of my time.
  The SPEAKER pro tempore (Mr. Miller of Florida). The question is on 
the motion offered by the gentleman from Michigan (Mr. Hoekstra) that 
the House suspend the rules and pass the bill, H.R. 4079, as amended.
  The question was taken.
  Mr. HOEKSTRA. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX and the 
Chair's prior announcement, further proceedings on this motion will be 
postponed.

                          ____________________