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Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...
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Do I Have to Be a Cop? Detecting and Reporting Financial Aid ...

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  • 1. The following is a presentation prepared for NASFAA’s 2009 Conference in San Antonio, TX July 12-15, 2009 National Association of Student Financial Aid Administrators
  • 2.
    • Do I Have to Be a Cop?
    • Detecting and Reporting
    • Financial Aid Fraud
    • Presented by:
    • Blain B. Butner
    • Dow Lohnes PLLC
    • Katherine Lee Carey
    • American Career College & West Coast University
    • Neil E. Sanchez
    • U.S. Department of Education, Office of Inspector General
    • July 14, 2009
  • 3. Institutional Obligation to Report Financial Aid Fraud Prepared and presented by: Blain B. Butner
  • 4. What is Fraud?
    • Fraud:
          • Intentional lie to obtain money or property from someone else
          • Includes money provided by United States Government
  • 5. What is Fraud?
    • Examples in Title IV
      • Student lying about name or Social Security number
      • Student lying about family income or marital status
      • Employee certifying eligibility of a fictitious student
      • Employee falsifying student eligibility documents
        • E.g., tax returns, high school diploma, GED certificate
  • 6. What is Fraud?
    • Not Fraud
      • Honest mistakes
      • Inadvertent mistakes
      • Even if repeated or systemic
        • E.g., misapplying satisfactory academic progress policy to hundreds of students, incorrectly prorating Pell Grant eligibility for non-standard academic years, errors in calculation of R2T4
  • 7. Obligation to Report Fraud
    • Must report fraud involving Title IV programs to the Office of Inspector General of the U.S. Department of Education
        • Fraud involving a student applicant
        • Fraud involving an employee
    • See standards of administrative capability, 34 C.F.R. § 668.16(g)
  • 8. Reporting Student Fraud
    • What must be reported?
      • Any “ credible information ” indicating that an applicant for Title IV funds “ may ” have engaged in fraud or other criminal misconduct in connection with his/her application for Title IV funds
  • 9. Reporting Student Fraud
    • Any “credible information”
      • Any unsubstantiated accusation, hearsay? No
      • Just “credible information”
    • That fraud “may” have been committed
      • Conclusive proof required? No
      • Sufficient if determine fraud “may” have been committed
  • 10. Reporting Student Fraud
    • Not necessarily any fraud, but information that is relevant to student’s eligibility for Title IV funds, or amount of funds to be received
      • This is Title IV fraud
  • 11. Reporting Student Fraud
    • Examples of Title IV fraud by students
      • False claim of citizenship
      • Use of false identity
      • False claim of independent student status
      • False statement of income
      • Forgery of signatures or certifications
      • Fake GED certificate
    • Any false or fraudulent information that goes to student’s eligibility for Title IV funds, or amount of funds
  • 12. Reporting Student Fraud
    • When must institution report to OIG?
      • Not required to report instantly when fraudulent information is first suspected
      • May first conduct review of student’s application together with eligibility documents and related information
  • 13. Reporting Student Fraud
    • Who is covered?
      • Student applicants
      • Parent applicants
      • Spouses of applicants
      • Financial aid consultants who help students or parents file their financial aid applications
  • 14. Reporting Employee Fraud
    • What must be reported?
      • Any “ credible information ” indicating that any employee, who acts in a capacity that involves the administration or receipt of Title IV funds, “ may ” have engaged in fraud, misrepresentation, conversion, breach of fiduciary responsibility, or other illegal conduct “ involving ” Title IV programs
  • 15. Reporting Employee Fraud
    • Any “credible information”
    • That employee “may” have engaged in fraud
    • “ Involving” Title IV programs
        • Very broad – not just FA officer who packages student
        • Could be employee who determines student’s admission, academic progress, or who disburses aid, among others
  • 16. Reporting Employee Fraud
    • As with student fraud, not necessarily any fraud, but information that is relevant to the eligibility and funding of:
        • The institution, or
        • Its students
    • through the Title IV programs
  • 17. Reporting Employee Fraud
    • So not just employee fraud involving one or more students
    • But also fraud involving institutional/program eligibility issues
      • E.g., program eligibility/accreditation, cohort default rate, 90/10 calculation, FISAP data
  • 18. Reporting Employee Fraud
    • When must institution report to OIG?
      • At time institution determines that it has “credible information” that employee “may” have committed fraud
      • No specific time frame
  • 19. Reporting Employee Fraud
    • Who is covered?
      • Any institutional employee (not just financial aid staff)
      • Any third-party servicer
      • Any other institutional agent
  • 20. Reporting Employee Fraud
    • Institution’s compliance auditor also must report to OIG any fraud he/she discovers in course of audit
      • Requirement is to immediately report to OIG
      • Explicit in ED Audit Guide for proprietary schools; expected for others
      • Applies to employee and student fraud
  • 21. Reporting Employee Fraud
    • May be very delicate situation (more so than student fraud)
      • Employee likely possesses confidential information about institution and students
      • Employee may be friend of yours
      • Fraud may have continued over period of time
      • Employee may be involved in conspiracy with others
  • 22. Detecting and Reporting Financial Aid Fraud
    • For further information, see:
      • Standards of Administrative Capability, 34 C.F.R. § 668.16(g)
      • ED’s Audit Guide: Audits of Federal Student Financial Assistance Programs at Participating Institutions and Institution Servicers , Section I (January 2000)
      • B. Butner, “Do I Have to Be A Cop? Detecting, Evaluating and Reporting Financial Aid Fraud,” NASFAA’s Student Aid Transcript , Vol. 13, No. 3 (2002), www.dowlohnes.com/bbutner , and go to Publications list
  • 23. Preventing and Detecting Financial Aid Fraud at your Campus: A Practical Approach Katherine Lee Carey General Counsel Vice President of Compliance Government Relations Officer American Career College & West Coast University
  • 24. Setting the TONE at the TOP
    • Just as with a Corporate Compliance and Ethics Program, a tone of compliance in Financial Aid begins at the top .
    • FA leadership must set the ethical tone and be empowered to expect that level of integrity from his/her team.
    • Update your Financial Aid Department Code of Conduct . Go beyond the required topics and establish your school’s, and your FA Department’s, expectations for integrity and ethics.
    • Create accountability around ethics and compliance. Add it to your annual review process.
    • Implement a Compliance Hotline or other confidential means of reporting fraud and other ethics breaches.
  • 25. An Ounce of Prevention …
    • Many times, fraud begins with an advisor with good intentions, trying to “do more” for the student. Talk about the right ways to assist students.
    • Leaders need to set the expectation that every FA transaction will be done with accuracy and integrity. Hold your team accountable for both.
    • FA team members must be properly trained to recognize fraud and must be empowered to ask questions of each other and of their leader.
    • Take advantage of training opportunities and keep yourself and your team up to speed on best practices.
  • 26. Creating Checks and Balances
    • Create a mechanism that prevents any one person from completing the entire packaging process for a student. Layer your review process.
    • Empower your team to question information that they get from other departments that affects eligibility; for example, HS diplomas, GED certificates, and ATB documentation.
    • Make the time to conduct file audits regularly.
    • VERIFY! VERIFY! VERIFY!
    • Layers of review, paired with a heightened awareness of ethics, will catch errors and spot potential fraud.
  • 27. Prevention Requires Training !
    • Not only does the FA leadership need to instill an ethical tone; they need to instill a sense of ownership of the fraud detection process.
    • Implement your Identity Theft Prevention Program (Red Flags Rule) and use the opportunity to train the FA team on the links between identity theft red flags and FA fraud red flags.
    • Use errors and issues as opportunities to teach the entire team. Prevent the same mistakes from reoccurring.
    • Don’t be afraid to discuss the criminal penalties of defrauding Title IV programs with your staff. Knowing that fraud can result in jail may deter the inclination to cross the line!
  • 28. Recognizing the Signs of Potential Fraud by Students/Families
    • Most common types of fraud involve misstating income and the number of dependents in school
    • US ED did an audit of the 1995-1996 PELL recipients and found 4.4% (about 100,000) had reported lower income than was reported to the IRS.
    • Follow up if the income reported:
      • Is a round number (who earns exactly $15,000 a year, on the dot?)
      • Does not include child support/ alimony received when the custodial parent is a female. (This doesn’t always mean anything, but it is worth double checking.)
    • If the family filed a paper return (not e-filed) and it appears that they are providing you a copy of an original, or an original itself, be very suspicious. They may have created a new return for purposes of defrauding Title IV.
  • 29. Put the fear of GOD (or at least ED, OIG and IRS) in them…
    • If you suspect fraud, inform the student/family that:
      • ED will compare the FAFSA info to the IRS forms they submitted.
      • There are strict penalties for fraud – and failing to report assets and income is fraud!
      • If a student begins school with fraudulently obtained financial aid, s/he can be expelled.
      • Fraud will be reported to the OIG. That means an investigation by a division of the federal government that could lead to criminal charges and prison. (Even worse? It could lead to an IRS audit!!!)
  • 30. Tips for Detecting Fraud within the FA Department
    • Remember that fraud isn’t always committed by the student. You have to be watchful for signs of fraud on your team as well:
      • During document review processes, check to see if handwriting on a completed application is the same throughout. Sometimes info “added” later was not authorized by the applicant.
      • If a new dependent has “appeared” on an application, and the name is written with different handwriting, follow up. Compare to W-2s.
      • Pay special attention to photocopies or documents (like SS cards, W-2s or 1040s) that appear to have been altered.
      • Be wary of any inappropriately close relationships between FA staffers and individual students, or if a staffer seems to be pushing harder than normal for additional funds for a student.
  • 31. What we lawyers call “forum shopping”…
    • If you have set accountability for compliance in your department, spotting those who are “working the process” should be a little easier…
    • If a staffer seems to be trying to skirt the normal process, or taking a new document to numerous people seeking approval, check to see why. It is possible that s/he did not get the answer they wanted, so they are shopping for someone who is not paying attention!
    • When your team feels empowered to ask questions of each other – this type of behavior will be noticed.
  • 32. What should you do?
    • React when you become suspicious !
    • Conduct an objective investigation of the facts.
    • Don’t accuse a family or employee of fraud until you have thoroughly investigated the situation. Sometimes an error is just an error – but errors still need to be corrected.
    • Request additional documentation:
      • Ask families to provide their W-2 and 1099 forms, or ask them to sign a waiver allowing the school to obtain tax docs directly from the IRS.
      • Get proof of registration (and call the school to verify) if a parent claims to be enrolled in college too, this is a common way to fraudulently reduce the EFC.
      • Ask for proof of divorce or separation, and ask for street addresses for each parent.
  • 33. Final thoughts…
    • As a leader, set a good example. Be ethical and your team will follow.
    • Set expectations of compliance and train to those expectations.
    • Provide accountability for compliance.
    • Use mistakes, issues and verifications as training opportunities.
    • Report suspected fraud to the ED OIG (as explained by Blain), even if no funds were disbursed.
  • 34. U.S. Department of Education Office of Inspector General Investigation Services
      • NASFAA
      • 2009 National Conference
      • July 14, 2009
      • Neil E. Sanchez
      • Supervisory Special Agent
  • 35. The Act established the Office of Inspector General in the U.S. Department of Education to prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Department programs and operations. Inspector General Act of 1978
  • 36. ORGANIZATIONAL CHART Part of the Department BUT… Independent
  • 37. ED/OIG Mission Statement To promote the efficiency, effectiveness, and integrity of the Department's programs and operations, we conduct independent and objective audits, investigations, inspections, and other activities.
  • 38.
      • Audit Services
      • Investigation Services
      • Evaluation, Inspection and Management Services
      • Information Technology Audits and Computer Crime
      • Investigations
    OIG Components
  • 39. U.S. Department of Education Office of Inspector General WESTERN REGION Sacramento, CA Long Beach, CA & Denver, CO CENTRAL REGION Chicago, IL; Dallas, TX & Kansas City, MO SOUTHEASTERN REGION Atlanta, GA; Pembroke Pines, FL & San Juan, PR MID-ATLANTIC REGION Washington, DC Philadelphia, PA & Pittsburg, PA NORTHEASTERN REGION New York, NY & Boston, MA
  • 40. Sources of Allegations
    • OIG Hotline
    • OIG Audit Services
    • Independent Auditors
    • ED Program Offices
    • Guaranty Agencies and Lenders
    • School Employees and Officials
    • Citizens and Students
    • Competing Vendors/Schools
    • Other Federal Agencies
    • U.S. Attorney’s Offices
    • Federal Bureau of Investigation
    • State and Local Education Agencies
  • 41. Who Commits Fraud Involving Education Funds?
      • School Employees, Officials, Owners, Financial Managers, and Instructors
      • Student Aid Recipients
      • Grantees and Contractors
      • Federal, State, and Local Government
      • Employees
      • Others
  • 42. Fraud Scheme Investigations
      • Student Fraud
      • Identity Theft
      • Financial Aid Consultant Fraud
      • School Fraud
      • Contract/Procurement Fraud
      • False Death and Disability Loan Discharges
      • Theft/Embezzlement by School Employees in Trust Positions
      • THESE ARE JUST A FEW…NOT ALL INCLUSIVE!
  • 43. Recent Trends Title IV Fraud Schemes
    • Identity Theft
      • DESMOND JOHNSON
      • (Dallas County Community College District)
    • Enrolling as a First-Time Student
    • (At Several Institutions With No Intention of Receiving an Education)
      • EDDIE RAY AUSTIN
      • (University of North Texas)
  • 44. 20 U.S.C. § 1097
    • Any person who knowingly and willfully embezzles, misapplies, steals, obtains by fraud, false statement or forgery, or fails to refund any funds, assets, or property provided or insured under [Title IV, HEA] or attempts to so embezzle, misapply, steal, obtain by fraud, false statement or forgery, or fail to refund any funds, assets, or property, shall be fined. . . or imprisoned . . . .
  • 45. Other Common Criminal Statutes
    • 18 U.S.C. § 371, Conspiracy
    • 18 U.S.C. § 641, Theft of Public Funds
    • 18 U.S.C. § 666, Theft/Bribery
    • 18 U.S.C. § 1001, False Statement
    • 18 U.S.C. § 1341, Mail Fraud
    • 18 U.S.C. § 1343, Wire Fraud
    • 18 U.S.C. § 1510/1512, Obstruction
  • 46.
  • 47.
  • 48.
  • 49. Texas Tech University Pell Grant Theft Ring
  • 50. Real World Examples
  • 51.
  • 52.
  • 53.
  • 54. Unger & Associates, Inc. Student Loan Fraud
  • 55.
  • 56. Who is Responsible for Reporting Fraud?
      • Everyone who deals with the DoED funding has a responsibility to help control fraud.
  • 57. Why Report Fraud?
      • Ethical responsibility
      • To deter others from committing fraud and abuse
      • To protect the integrity of the Federal, State and Local programs
      • Regulatory Requirement (34 CFR 668.16)
      • To avoid being part of the fraudulent/criminal activities
  • 58. Criminal Liability
    • 18 U.S.C. § 2, Aiding and Abetting
    • 18 U.S.C. § 4, Misprision of a Felony
  • 59. OFFICE OF INSPECTOR GENERAL HOTLINE
    • 1-800-MISUSED
    • E-MAIL OIG.HOTLINE@ED.GOV
    • FAX 202-260-0230
  • 60.
  • 61.
  • 62. Contact ED/OIG Directly
    • United States Department of Education
    • Office of Inspector General
    • 1999 Bryan Street, Ste. 1440
    • Dallas, Texas 75201
    • Neil E. Sanchez
    • Supervisory Special Agent
    • [email_address]
    • 214-661-9546
  • 63. Contact Information
    • Blain B. Butner
      • Dow Lohnes PLLC
      • 1200 New Hampshire Ave, NW
      • Washington, DC 20036
      • (202) 776-2579
      • [email_address]
    • Katherine Lee Carey
      • American Career College & West Coast University
      • 200 E. Baker Street, Suite 201
      • Costa Mesa, CA 92626
      • (714) 727-0722
      • [email_address]
    • Neil E. Sanchez
      • US Department of Education, Office of Inspector General
      • 1999 Bryan Street, Ste. 1440
      • Dallas, TX 75201
      • (214) 661-9546
      • [email_address]

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