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Mari Farthing

This is Eye on ED the official podcast of the U.S. Department of Education, Office of Inspector General, where you'll find the latest news about our audits, investigations and efforts to find and stop fraud, waste and abuse in federal education programs, operations and funding.

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Mari Farthing

The U.S. Department of Education is statutorily responsible for administering some one hundred K–12 programs, providing funding mostly to states and school districts and schools with a high percentage of students from low-income families. These programs, and the billions of dollars that fund them, are intended to help schools better serve children who without this funding, could not be properly supported. But every year, bad actors intentionally misuse, steal or otherwise abuse K–12 funds for their own selfish purposes. This is particularly egregious, as the perpetrators of these crimes tend to be school officials, the very people holding positions of trust to educate our children. So what does K– 12 fraud of look like? How does it happen and what is the OIG’s role in fighting K–12 fraud? And, what can you, our audience, do to help? We'll cover all of that and more in this episode of Eye on ED. And to help us do this is someone in the forefront of the fight, the OIG’s Assistant Inspector General for Investigation Services, Jason Williams.

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Mari Farthing

Jason, thank you for joining us today.

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Jason Williams

Great. Thanks for having me.

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Mari Farthing

We're here talking about fraud involving funding for K–12 programs. I think the best place for us to start is to explain what these program funds are supposed to be used for.

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Jason Williams

Sure. So, you know, K–12 funding has a lot of different sources. One of our major programs is Title I. Title I is meant for those individuals that are from the lowest economic class within the country and hopefully to bring those people up to their peers in the more affluent, more, you know, richer parts of the country, right, to make sure they're on the same educational level. Also, we're looking at special education programs—these are people with disabilities—the same thing, making sure that they're receiving the services that are entitled to, to bring them up on the same education level as their peers. We have other programs, such as Title II that supports teacher education, helping them understand and get more training in, you know, expanding their skill set and all the different things that we're teaching our children—math, science, history, you name it. School safety—a lot of things that unfortunately happen in schools, a lot of traumatic events. These grants were really meant to make children feel safe in an environment that's supposed to be safe and to give them psychological services. So there's a really a whole gamut. Like you said, it's over 100 different programs in this area, and it's all focused on making sure that children are in a safe learning environment and they can get the best out of this free education they’re entitled to.

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Mari Farthing

That's great. That's such a great mission. And what does fraud look like in these programs generally?

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Jason Williams

So there's a lot of different fraud indicators that we see in the K-12 environment that are a little, I think, unique. For us … the hardest thing for us is visibility. So the way the money flows. So you have huge, big Department of Education that's giving out billions of dollars every year in grants and all these things that the states are entitled to, and that money flows through your state Department of Education and into what we call your local education agency [(LEA)]—your local school board, your district schools. So we don't really have a lot of visibility. So we see it from comes from ED. It goes to the State. But after that we kind of lose visibility. And what's really going on in the LEAs. A lot of the things that we see when it gets to the LEA at the district level is issues with procurement. That's usually one of the biggest issues. So not arm's length transactions­—you know the vendor or the vendor gives you some kind of kickback to get the get that contract awarded or that service. Also, we see payroll irregularities, people paying themselves more than are entitled to, businesses that don't exist. So ghost businesses, ghost employees. Right. We're paying people payroll. They're not actually working on behalf of the students. Conflicts of interest, you name it. There's this a host of issues that happen, and it happened all the way from the district level at the superintendent all the way down to, you know, in the classroom.

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Mari Farthing

Well, so you mentioned, like, ghost vendors, non-existent vendors. Can you tell us about what's happening there?

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Jason Williams

Sure. So when we have these vendors that show up, you know, there's vendors that actually provide equipment, right? And the equipment is a tangible thing. There's something showing up. There's a laptop or there's some kind of assistive device showing up. Well, those things don't always make it into the loading dock or they don't always make it into the classroom. And so we see a lot of irregularities with that where people are ordering things. But maybe the right internal controls aren't necessarily in place to make sure that there's a proper accounting for this property coming into the district. And we're able to find these things where they're supposed to be. Another thing that we see is in terms of the schemes, it's the procurement process for services. So services is kind of one of those things—it's not necessarily tangible. We know it when we hear it. We know we can see a statement of work of what's supposed to happen. But those things don't necessarily always happen and a really big thing that we see with that is usually in consulting services. You know, that's one of those things that's kind of hard to quantify that I'm consulting and I'm helping you understand something better or helping you get in a better place to do to do a thing. And you don't always see that, like, actually materialize. And there's something to this fictitious company you're creating on behalf of maybe a superintendent or a school board member. They are creating these companies to do this. It's just a way to funnel money out of the schools.

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Mari Farthing

You know, it's amazing—how do people get away with this and how do these schemes work?

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Jason Williams

You know, a lot of it comes down to detection. And so we have these internal controls in place. These separation of duties and they’re all meant to, you know, the same person that pays the credit card bill is not the same person that's doing the ordering. And that's for a specific reason. I know sometimes, you know, people look at it, “it's just another barrier for me to do my job.” But what it's actually doing is making sure that there are these checks and balances in place that detect these activities. And so what we see a lot of times is where people are committing fraud and schemes, they cover their tracks. Right? Because what's the point if you're going to steal something on Monday and you get caught by Wednesday? So they cover their tracks. And that's why some a lot of times we would uncover these things they've been going on for years because they're trying to make sure that they're going undetected. They’re overriding or those internal controls in these processes to not be detected, that I'm funneling money out of this school or I'm getting a kickback on a contract, all these things are done to let me commit to fraud, but let me also not get caught.

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Mari Farthing

You know, I think people may want to know how big of a problem this is. Is fraud in K–12 programs growing?

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Jason Williams

So, you know, we've been working on this since the beginning. Since OIG’s inception. Like this has always been an issue. Whenever there is money that's coming out, especially billions of dollars that's going out, there's always going to be some kind of level of fraud. And so we've been working on this for years. I think what we've seen is actually growing. And a lot of that, I think is due to the pandemic—there was a lot more money that went out during the pandemic, and rightfully so, were in the throes of a national emergency. And with that, there was a lot of controls that were relaxed. You know, there was an ability to award no bid contracts—that's always a huge issue. Mind you, we needed the expediency to be able to award things, to get, you know, the assistance people need in the classroom. But what we see is that when you're doing that, all these things of like making sure that the district or the school gets the best price are not necessarily always going to be followed. Another thing that we see is that, you know, there's just a lot less people in their work prior to 2020, you know, the population has shifted a lot. A lot of the districts that you look at, they’re facing these funding shortfalls. And so whenever there's a constriction in the amount of funding that's available and there's not as many staff available, right, you're starting to lose some of those internal controls. So where you might have had a lot of people in this process that could look at these transactions and like, discover what might be going on, a lot of those controls are no longer there. And so that opens opportunity for fraud.

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Mari Farthing

So some of these things that you're talking about may fall under the umbrella of public corruption. And for our audience, public corruption is a breach of public trust, like when someone uses their position for personal gain, maybe receives or solicits a bribe. In a school system that could mean anyone, right? Like from a part-time school helper all the way up to the district superintendent and anyone in between because this kind of corruption happens at all levels.

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Jason Williams

It absolutely does. And so what we've seen in investigations, you know, and I know we're going to talk about it today. We've seen from the Chief Financial Officer, like you said, the district superintendents that are involved in these public corruption schemes. And so they're misusing their position of trust. They've been entrusted to properly administer Federal, State, and local funds, and they've abused the trust of the public. And we see that, like you said, throughout the entire ecosystem, it's not just the district leadership. We also see it at the, you know, within the school board members. So you're having elected members of, you know, of these different boards that are also involved in these schemes and all the way down to, you know, treasurers and clerks and individual schools, we see those and we see embezzlement schemes and all kinds of different things there. So it's it really runs the gamut in terms of who can be involved in these things.

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Mari Farthing

Right. So what is the OIG’s role in fighting K–12 fraud?

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Jason Williams

So the OIG plays a significant role in this. You know, so the OIG’s mission as you talked about earlier is we're overseeing all these programs so the hundreds of programs that are coming out of the Department. We're making sure that these programs are operating as intended. And so by looking at, you know, this problem nationwide and understanding what's going on in individual districts, we're really trying to focus on are people doing the right thing. Are the funds being administered as intended, are there—is the money getting to the classroom. You know, so many of these schemes, the money is not. They're using it for all kinds of frivolous things that are not education related. And so our role is to make sure that we're getting justice for those victims.

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Mari Farthing

So I know there are highlights and examples of OIG investigations involving K–12 fraud in our Semiannual Reports to Congress and press releases which are available on our website [oig.ed.gov]. But are there any cases that particularly stand out to you that you want to share with us today?

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Jason Williams

Unfortunately, I have many. But you know, I know we have limited time. So one of the things that I'm thinking about that really just comes to my mind is the case we wrapped up last year, case out of California, where this person was the CFO [chief financial officer] of a school district and embezzled $16 million over a number of years. And just, you know, really, you know, something we were talking about earlier, really incredible frivolous expenses. You know, they're buying designer handbags, paid for over $1 million home, even got cosmetic surgery on himself. And so, you know, this was a Title I school district. So over 80 percent of the students, students in this district were what we considered the neediest group. These are the people that need the most help the most assistance and, you know, he’s stealing this money out of the classroom. So that's that really is like that is education loss for these students in the classroom. Another case that I'm thinking about that comes to mind is a case out of West Virginia. And in that particular case, you have a district supervisor that's over the maintenance department. And this is a pandemic era case where, you know, like I said, we're in the throes of the pandemic, there's a lot of things going on, there's a lot of controls that are relaxed, and he's in charge of buying equipment and make sure that, students can come back into school and be safe. And he's colluding with outside people to order supplies that don't exist. And then on top of it, you know, roping his parents into the scheme to help launder the funds, because you know we were talking about that before. The goal is to steal the money, but also not to get caught. And so using his parents to help launder the funds that they would receive and then, like I said, even goes further down into the school level. And there’s a case out of Oklahoma where a school clerk and a treasurer, you know, they're inflating payroll and they're making sure that they're getting paid for services that they didn't actually perform. So it really runs the gamut, on like, really who's involved in these schemes. But I think the common denominator that I'm proud of, that we see through our work, is that all these people ended up in prison.

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Mari Farthing

Wow. So there's real repercussions for those who commit these crimes—we're talking about more than getting fired, more than paying a fine or probation. We're talking prison sentences. Real time.

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Jason Williams

Absolutely. Yeah. You know, these these are not victimless crimes. It's like I was saying, like, every time a dollar stolen out of one of these programs, that's a child that's not getting something that they needed in the classroom. And at the end of the day, all of these programs are intended to make America the most competitive as we can be. And we really can't do that without education, and so rightfully so. At the conclusion, our goal is to make sure, like I said, we're getting justice for the victims. And at the conclusion of these things, a lot of these people, you know, are heading to prison.

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Mari Farthing

So how does the OIG find out about possible fraud in K–12 programs without giving away any trade secrets can you share some of the tools that are helpful in catching these fraudsters?

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Jason Williams

Yeah, absolutely. And thank you for that, definitely not going to share all of our tricks in our bag! But the biggest thing for us—it's understanding like what's going on it's information. And for us, every person. So there's over a thousand schools—I'm sorry— a thousand school districts, let me correct that, in this country. And so there's thousands of schools. And so like all of those people that work in these schools that you think about your teachers, your administrators, all the way up to the superintendent.

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Mari Farthing

Literally millions of people.

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Jason Williams

There's millions of people that work in the education system in this country in the K–12 environment. And all those people are our eyes and ears. These are the people that are there every day. They're in these places and they're seeing something and they're questioning it. And that's what we appreciate. Like you see something that might not be right and you question it and say, “you know, this just doesn't seem right. I've seen something that just doesn't make sense. I'm going to record this to the OIG.” And that's really for us, that's our biggest resource in that environment is people that see something and they say something to us and say, “hey, I've discovered something,” or “I've seen something that just doesn't appear right,” or “we have this vendor, this company that just isn't doing what they're supposed to be doing. Let me report this to the OIG.”

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Mari Farthing

So when people may see something that could be fraud, how should they report it?

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Jason Williams

The OIG hotline is the best way to do that. So the OIG hotline [oighotline.ed.gov] operates 24 hours a day, 7 days a week, and it is really easy to use. It really walks you through step by step on what are you seeing in your particular situation. You know, is there something wrong? Is there a document that you saw—and it'll literally walk you through these steps. You can also submit a complaint anonymously. We really do appreciate that if you provide your contact information, because that gives us the ability to ask follow-up questions, because generally when we look at something, even if you turn in a book to us—which, you know, we hope you don't—but if you turn in a whole lot of information to us, we always still have additional questions and we'll follow up. And so we really do appreciate when people give their information. But if for some reason you do want to stay anonymous, you can do that. Also, we protect whistleblowers. You know, if you're working in a K–12 environment and you've, you know, brought it up to your management that “hey, there's a problem with how these funds are being administered” and someone retaliates against you. There's a recourse here with the OIG. We can look at.

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Mari Farthing

You know, so you noted that K–12 fraud, going back, is often committed by someone within the system. For the school officials, teachers, employees, those on the inside who are most likely to identify fraud. How can the OIG help?

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Jason Williams

You know, the way we can help them is just making sure they understand, like what they're looking for. We give out, you know, we have plenty of materials on our website [oig.ed.gov/resources/free-materials] and we're always trying to highlight, like these are the indicators. There's always these indicators of fraud. You know, there's always these things and I’m going to give you a prime example. Someone living beyond their means, you know, if you see something that it's just, you know, it's just not normal behavior. You know, most people generally don't show up in a school district carrying a $25,000 designer purse, especially if that's that's out of their norm—you know, maybe there might be some kind of, you know, off ball case there, but, you know, it's just seeing these little things or, you know, you get a credit card statement and yeah, it just doesn't, you know, it just doesn't look right. It's not the statement that you normally would get in the mail every month. Somebody brought the statement to you and handed it to you. And you're like, just the numbers on this don't seem right. Those are the things we want people to look for. So like I said, we on our website, we have a number of different fraud indicators about how like, this is kind of what you're looking for when you're when you're looking at when you're doing your normal day, your daily duties, are you, you know, are you seeing these things, these anomalies that just do not make sense.

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Mari Farthing

And there's also training available, I understand?

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Jason Williams

Absolutely. So, you know, our staff is incredibly dedicated to making sure that everybody understands what their role is in this environment. And so there's a number of different trainings that we have on our website [oig.ed.gov/resources/free-training]. Our agents actually go out and do live training a lot of times and in service trainings in different K–12 districts, different trade associations that deal with K–12 funds, you name it. And so we're really there, like I said, to educate the public on how precious these dollars are—they’re not unlimited, and we want to make sure that they're being used appropriately.

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Mari Farthing

That's really good to know. I know our audience will really appreciate that.

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Mari Farthing

Jason, thank you so much for being here and sharing your expertise and your time with us. I think you provided our audience with some great information about identifying and reporting fraud to OIG.

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Jason Williams

It’s been an absolute pleasure. Thanks for having me, Mari.

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Mari Farthing

And for our audience. I know we covered a lot. The good news is this is a recording and you can revisit it again and again and again. The even better news is you can find all of the materials that we highlighted today, including our podcast and our hotline portal on our website, oig.ed.gov. And with that, until next time, I'm Mari Farthing and this has been Eye on ED.