- The Washington Times - Wednesday, April 4, 2001

Education Secretary Rod Paige and other Bush administration appointees have inherited a financial nightmare at the Education Department, federal investigators told a House subcommittee yesterday.
Problems include incalculable fraud in the department's grant and loan programs, which distribute $100 billion per year, Inspector General Lorraine P. Lewis told the House Education and the Workforce select education subcommittee.
"No one could ever give you a total number of how much fraud has occurred," although about $100 million worth of recent fraud has been identified, she said.
Additionally, the department made at least $250 million worth of mistaken duplicate payments to grantees and vendors much of which was recovered following IG audits and $108 million of "sustained disallowed costs," Mrs. Lewis told the congressional panel.
Most problems were blamed on the department's failed financial accounting system, which the Clinton administration implemented in 1998 at a cost of $5 million. A new system is in the works, the inspector general said.
Rep. Peter Hoekstra, the subcommittee's chairman, praised the inspector general and her investigators for discovering recent embezzlement and phony overtime cases that department officials had overlooked.
The Michigan Republican said a "theft ring" of corrupt outside contractors and department employees stole $300,000 worth of electronic equipment and used it to collect more than $600,000 in false overtime pay. Seven persons so far have pleaded guilty to theft and conspiracy charges.
Embezzlers at the department last year stole $1.9 million of federal impact-aid funds destined for two South Dakota school districts. They used the money to buy a new Cadillac Escalade, Lincoln Navigator, and real estate in Maryland. Mrs. Lewis did not disclose details because the probe is ongoing.
The Education Department's failed audits three years in a row have highlighted its "vulnerability to fraud," Mr. Hoekstra said.
"The department still has a Third World country accounting system. It's been like this for 2 and 1/2 years," he said.
Mr. Hoekstra said the department should immediately end unsupervised access to millions of dollars that several hundred department employees enjoy through government credit cards, blank checks and electronic transfers of funds.
About 21 officials can request "blank checks" for up to $10,000 each for official purchases without involving anyone else, said Jeffrey C. Steinhoff, managing director of the GAO's financial management and assurance division. The department reported issuing more than 19,000 third-party drafts totaling about $23 million last year.
"The department is thus vulnerable to the possibility of individuals using third-party drafts to pay for personal expenses, without any physical or system controls in place to prevent or detect such an occurrence," Mr. Steinhoff said.
He said the GAO also found $1 million worth of monthly credit-card statements that "were not signed by an approving official indicating the purchases were approved."
The charges included "items that could be used either for official business or for employees' personal needs, including computers, software, cell phones and Internet service," he said. "Education's own policy specifically lists computers as an item that should not be purchased with government purchase cards."
Lindsey Kozberg, a department spokesman, said Mr. Paige "has an outstanding reputation for fiscal discipline."
"He'll bring that and his reputation and interest in strong and effective management to the Department of Education. He wants to promote public confidence in the department as an efficient and effective agency."

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