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February 2015

Presented by Adam Shanedling, Special AgentOIG Investigation Services

Western Region

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• OIG Organization and Mission

• Sources of Allegations

• Fraud Indicators

• Examples of Title IV Fraud Schemes

• Detecting and Preventing Distance Education Fraud

• Standards of Administrative Capability

• Contact Information

• Question and Answer

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Part of the Department

BUT…Independent

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…to prevent and detect fraud, waste and abuse and improve the economy, efficiency and effectiveness of Education Department programs and operations.

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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.

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• Audit Services• Investigation Services• Evaluation, Inspection and Management        

Services• Information Technology Audits and Computer

Crime Investigations  • Immediate Office/Counsel/Public Affairs

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• Responsible for all criminal and civil investigative activities relating to the Department’s programs and operations

• Operates with full law enforcement authority to make arrests and seek and execute search warrants 

• Conducts fraud awareness training and outreach activities with entities and organizations that receive Department funding, that represent the education community, or that have oversight responsibilities for education programs

• Operates the OIG Hotline, which allows anyone suspecting fraud, waste, or abuse involving Department funds or programs to provide their concerns to us

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Investigation Services Regional Map

• Under the Inspector General Act of 1978, as amended, OIG can accessany records available to the Department of Education in order toperform audits, investigations and inspections of Department programsand operations.

• The Family Educational Rights and Privacy Act (FERPA) requiresschools receiving funding from the Department of Education to protectthe privacy of student education records. In many cases consent mustbe received from a parent or student before records can be disclosed.

• FERPA provides that consent is not required in order to disclosestudent records to the Office of Inspector General. The regulationsprovide that representatives of the Secretary, which include OIG, mayhave access without prior consent in connection with an audit,evaluation, or enforcement of legal requirements related to theDepartment’s programs.

FERPA regulations can be found at 34 C.F.R. Part 99,

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FSA and OIG Coordination

The Office of Inspector General assists the Department in promoting the integrity of the Title IV programs.

• Review and comment on all regulations to suggest areas for improvement.

• Regularly exchange information with FSA to identify current issues in compliance and abuse and coordinate oversight and investigatory activities when appropriate.

• Issue Management Information Reports to alert the Department about serious fraud and corruption trends.

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• School Employees and Officials

• OIG Hotline

• OIG Audits and Inspections

• Department Program Offices

• Citizens and Students

• Other Federal Agencies

• U.S. Attorney’s Offices

• Other OIG Investigations

• State and Local Law Enforcement Agencies

• Federal Bureau of Investigation

• Qui Tam Actions

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ED/OIG Special Agents are Federal Law Enforcement Officers

Special Agents receive training in:

• Interviewing / Interrogation

• Criminal Law

• Civil Law

• Program and Contract Fraud

• Firearms/Defensive Tactics

• Search and Arrest Warrants

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A deliberate distortion of the truth in an attempt to obtain something of value.

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Lying and cheating.

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•Weak controls

•Little or no oversight

•Lax rules

•Debt

•Addictions

•Status

•Greed

•Everyone does it.

•I was only borrowing the money.

•I was underpaid and deserve it.

FraudTriangle

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• One person in control • No separation of duties• Lack of internal controls/ignoring controls • No prior audits • Repeat audit findings• High turnover of personnel • Unexplained entries in records • Unusually large amounts of payments for cash• Inadequate or missing documentation • Inability to answer or respond to basic questions• Altered records • Non-serial number transactions • Inventories and financial records not reconciled • Unauthorized transactions• Related Party Transaction

FRAUD RISKS

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Examples of Title IV Fraud Schemes Related to Schools

• Ghost students

• Leasing of eligibility

• Default rate fraud

• 90/10 Rule manipulation scheme

• Financial statement falsification

• Falsified last date of attendance

• Obstruction of a federal audit or program review.

• Fraud/Theft by School Employees

• FAFSA fraud‐ enrollment 

• Falsification of GEDs/HS Diplomas

• Falsification of attendance and Satisfactory Academic Progress

• Falsification of grades

• Failure to make refunds Loan theft/ forgeries

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• Ensure that staff receive necessary Title IV training.

• Review documents thoroughly.

• Question documents/Verify authenticity.

• Request additional information from the students or parents.

• Compare information on different documents.

• Contact the OIG if you suspect fraud.

• Cooperate with the OIG in connection with an audit or investigation.

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Education Fraud

Title 20 U.S.C. § 1097 (a)

• 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 this subchapter and part C of subchapter I of chapter 34 of Title 42, or attempts to embezzle,….

• Persons convicted of a felony shall be fined not more than $20,000 or imprisoned for not more than 5 years, or both.

• Attempt is defined as, “an undertaking to do an act that entails more than mere preparation but does not result in the successful completion of the act.”

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• Statutory and Regulatory Access to Records

• Consensual Search/Access

• Search Warrant

• Court Order

• Subpoenaso Grand Jury

o Administrative

• Interviews

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• 18 USC § 371 CONSPIRACY

• 18 USC § 1001 FALSE STATEMENTS

• 18 USC § 1341 MAIL FRAUD

• 18 USC § 1343 WIRE FRAUD

• 18 USC § 1014 BANK FRAUD

• 18 USC § 641 THEFT OF GOVERNMENT FUNDS

• 18 USC § 666 THEFT CONCERNING FEDERAL PROGRAMS

• 18 USC § 1030 COMPUTER FRAUD/EXCEEDING ACCESS

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Example of Criminal Investigation

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Example of Criminal Investigation

• President of Galiano Career Academy, Michael Gagliano used a "diploma mill" owned by his wife, to make students eligible for student assistance programs.

• The Department of Education conducted a program review at Galiano Career Academy in 2009, and when reviewers saw suspicious activity, a criminal investigation was launched. OIG Special Agents later learned Michael Gagliano installed cameras and microphones prior to the Department of Education's visit so he could hear their conversations.

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Example of Criminal Investigation

Former President Of Galiano Career Academy Sentenced For Theft Of Federal Funds, Obstruction Of A Federal Audit, And Aggravated Identity Theft

On February 25, 2014, in Orlando, FL, U.S. District Judge Roy B. Dalton sentenced Michael Gagliano (50, Sanford) to four years in federal prison for theft of government property, obstruction of a federal audit, and aggravated identity theft. As part of his sentence, the court also ordered restitution and entered a money judgment in the amount of $2,105,761.00, the proceeds of the charged criminal conduct. Gagliano pleaded guilty on August 16, 2013.

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Examples of Criminal

Investigations in the Region

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Former Vice‐President

• Sheila Mullineaux was the former vice‐president of Crown College, Tacoma, WA

• Mullineaux along with 3 employees obtained $65,750 in Pell Grant and FFEL loan funds

• They obtained these funds for themselves and others by claiming to be students when they were not students

• Mullineaux planned to have her loans discharged after the school officially closed

• Two officials went to trial and were convicted

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Rhodes Scholar Case• Referral from USA Funds

• Individual legally received a second SSN based on personal safety issues

• Individual used her new SSN to defraud lenders out of more than $600,000 in student loan money that she used to play the stock market, buy a condo and launch a startup business

• Received approximately $240,000 in Stafford subsidized and unsubsidized loans in addition to almost $700,000 in private loans through Sallie Mae and USA Funds

• Sentenced to 57 months

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FSA and Recovery Act Fraud

• Parents and their son plead guilty in September to Financial Aid Fraud

• They provided false information on multiple FAFSAS by failing to disclose $700,00 in income

• Income was derived thru fraudulent means involving bribery and kickback schemes

• Funds were stolen from the Chippewa Cree Tribe thru the creation of a shell company where diverted Recovery Act funds were deposited

• The scheme resulted in the receipt of over $98,000 in FSA funds

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Referral from Financial Aid Director

Obtained records and developed PC for a warrant

Scheme involved 4 defendants, 267 “straw students”

Did not have high school diplomas or equivalent

No intention of attending school

Charged w conspiracy, wire fraud

Loss is $1.8 million

Arrests

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• Package multiple distance education cases together

• Indict several cases within a few weeks

• Coordinate multiple arrests 

• Press conference

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Referral from Financial Aid Director

Noticed FSA was disbursed to same address, same identifiers

Checked Education databases, subpoenaed records

Executed a search warrant‐evidence found

2 best friends were the ringleaders along w 4 family members‐loss is approximately 280,000

Charged and pled guilty to conspiracy, aggravated identity theft, and one person w false statements

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• School went from non‐profit to for‐profit

• Represented nursing program was accredited

• Student filed civil lawsuit

• Results of investigation:  $686,700 civil settlement

• Director changed information on FAFSAs

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• Current inmate provided former inmate with PII of several inmates via mail and phone

• Four women were charged with enrolling straw students at a community college for sole purpose of obtaining FSA funds

• Many of the straw students were inmates in the Arizona State Prison Complex

• All four pled guilty and were sentenced

• Estimated amount of fraud was $150,000

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Obtains identifying information from straw students “individuals who willingly provide the information.”

Completes multiple financial aid applications using the information collected.

Applies for admission under the institution’s open admissions program, where little or no third-party documentation is required.

Participates in the amount of on-line interaction necessary to establish participation in the academic program and secure disbursements under an institution’s procedures.

Detecting fraud before funds have been disbursed is the best way to combat this crime. Some recommended procedures include implementing automated protocols that monitor information in your student information data system to identify instances where a number of students:

• Use the same Internet Protocol (lP) address to complete and submit an admissions application.

• Use the same IP address to participate in the on‐line academic program.

• Use the same e‐mail address to submit an admissions application.

• Use the same e ‐mail address to participate in the on‐line academic program.

• Appear to reside in a geographic location that is anomalous to the locations of most students in the program. 41

Schools can modify disbursement rules for students participating exclusively in distance learning programs, which would immediately reduce the amount that fraud ring participants can receive. Schools have the authority to:

• Delay disbursement of Title IV funds until the student has participated in the distance education program for a longer and more substantiated period of time.

• Make more frequent disbursements of Title IV funds so that not all of the payment period's award is disbursed at the beginning of the period.

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Link to OIG’s Distance Education Fraud Ring Investigative Program Advisory Report (IPAR)

• http://www2.ed.gov/about/offices/list/oig/invtreports/l42l0001.pdf

Information for Financial Aid Professionals (IFAP) website:

• http://www.ifap.ed.gov/ifap/index.jsp

Dear Colleague Letter GEN-11-17:

• http://www.ifap.ed.gov/dpcletters/GEN1117.html

Final Management Information Report PIN Security Vulnerabilities

• http://www2.ed.gov/about/offices/list/oig/auditreports/fy2013/x21l0002.pdf

The Secretary considers an institution to have administrative capability if the institution:

(f) Develops and applies an adequate system to identify and resolve discrepancies in the information that the institution receives from different sources with respect to a student’s application for financial aid under Title IV.

(g) Refers to the Office of Inspector General…any credibleinformation indicating that an applicant for Title IV, HEA program assistance may have engaged in fraud or other criminal misconduct in connection with his or her application.

Schools must also refer to the OIG any third‐party servicer who may have engaged in fraud, breach of fiduciary responsibility, or other illegal conduct involving the FSA Programs. 

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Why Report Fraud To the OIG?

• Statutory and regulatory requirements.

• Ethical responsibility.

• To deter others from committing fraud and abuse.

• To protect the integrity of the Title IV Programs.

• To avoid being part of a fraud scheme.

• To avoid administrative action.

• To avoid civil penalties. 

• To avoid criminal prosecution. 

• To avoid incarceration. 

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www.ed.gov/misused

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QUESTIONS?

• Special Agent in Charge Natalie Forbort (562) 980-4132

• Assistant Special Agent in Charge Dave Aspling (562) 980-4135

• Special Agent Adam Shanedling (562) 980-4136