Critics cite progress in fight on fraud

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Congressional critics say the Education Department has made a "comeback" from years of corruption by employees who embezzled hundreds of millions of dollars from federal aid accounts to buy real estate and sport utility vehicles -- even a $50,000 red Corvette convertible.

Rep. Pete Hoekstra, chairman of the House Education and Workforce subcommittee that exposed corruption and abuses at the department during the 1990s, credits Secretary Rod Paige and his deputy, William D. Hansen, who sits on President Bush's White House Management Council, for the cleanup.

The department last year, for the first time since creation in 1979, received a "clean audit" from the outside auditing firm Price Waterhouse.

Nineteen department employees were indicted -- 13 so far convicted -- for a $2 million fraud scheme, involving theft of impact-aid money and a separate multimillion-dollar scam to bilk the government for phony overtime claims.

Verizon, the department's telephone and Internet contractor, was forced to pay the government $2 million for the role of its contract employees in the phony overtime ring and employee theft of millions of dollars' worth of government-bought cell phones, computers, and 50-inch-screen TVs.

"We would not be able to tell this success story if it weren't for the leadership of Secretary Paige and his management improvement team," Mr. Hoekstra, Michigan Republican, said at a recent oversight hearing.

But the department's $300 billion student-aid program still faces tough challenges through fraud and abuse, Linda Calborn, the General Accounting Office's director of financial management and assurance, told Mr. Hoekstra's subcommittee.

The department reduced the loan default rate from 22 percent to 5.6 percent last year, but work still needs to be done to detect faulty applications and have internal controls to prevent improper loan and grant payments, Mr. Hansen said in an interview.

By the time the Bush administration took office in January 2001, the department had lost track of $450 million from fraud, waste and errors, he said.

Mr. Hansen blamed "a culture of complacency" and a lack of internal controls for hundreds of millions of dollars of improper grants and loans.

One year, Congress had to make two appropriations for college scholarships given in honor of Sen. Robert C. Byrd, West Virginia Democrat, because the department awarded them to the wrong slate of applicants.

Mr. Hansen, 44, credits Mr. Bush, "the first president with an MBA" -- a master's degree in business administration -- and his decision to manage federal Cabinet departments with corporate-style executive decision-making.

"When he met with all the deputy secretaries early on, he was determined on a couple of fronts," Mr. Hansen said. "No. 1, he named each one of us across the government as the chief operating officers or the COOs of each of our agencies." Each sits on the 15-member President's Management Council that developed Mr. Bush's "management agenda" under the direction of Office and Management Director Mitchell E. Daniels Jr.

"We really mapped out in very concrete ways what his expectations were for government performance in agencies, and this wasn't superficial stuff like some other folks have done in the past," Mr. Hansen said.

Mr. Hansen said the department had 660 outstanding audit problems, including unsupervised department credit cards which almost all 4,700 employees had access to -- many with $350,000 spending limits.

Mr. Paige wanted the problems "nipped in the bud and cleaned up" and to get a clean audit within 18 months. "He took it seriously and went right after it very aggressively and really has a zero tolerance for types of activities that were going on here," Mr. Hansen said.

The secretary called in 20 of the department's best career executives, told them to drop all day-to-day responsibilities in order to serve on a blue-ribbon "SWAT team," that "rolled up its sleeves" and added 250 more problems to the 660 they already had to solve, the deputy secretary said.

He said the department still faces enormous challenges as it implements Mr. Bush's No Child Left Behind Act, which requires greater reading and math achievement in grades three through eight throughout the country over the next decade, and state accountability plans to demonstrate yearly improvement as a condition for receiving federal Title I money for reading programs.