Holding the Government Accountable

Testimony of POGO's Danielle Brian Regarding H.R. 2347 and the Pell Grant Program Before The Subcommittee on Government Management, Information, and Technology of the Committee on Government Reform and Oversight

Good afternoon Mr. Chairman and Members of the Subcommittee. My name is Danielle Brian. I am the Executive Director of the Project On Government Oversight, a non-profit, non-partisan group whose mission is to investigate, expose, and remedy abuses of power, mismanagement and subservience to special interests by the federal government. I appreciate this opportunity to speak this afternoon in support of the Committee's efforts concerning the elimination of fraud in Federal Benefit Programs and, in particular, the Pell Grant Program.

My previous experience in working with this Committee, and particularly Congresswoman Maloney, in our efforts to force oil companies to pay what they owe for the production of crude oil on federal lands has been so successful that I have great expectations for your success in tackling the issues before us today as well.

The federal aid program known as the Pell Grant Program, administered by the Department of Education, makes higher education possible for thousands of students every year. Unfortunately, abuse of the Pell Grant Program has succeeded in funneling a large portion of these funds into the hands of ineligible students.

Last year, a college financial aid officer contacted the Project On Government Oversight regarding their experience with fraudulent Pell Grant applications. Throughout the correspondence that followed, they outlined a pattern of deliberate misrepresentation on the part of Pell Grant applicants, their parents, and in some cases, even faculty members, eager to lure prospective students with the promise of easily available federal financial aid. Struck by the audacity, blatancy, and the seeming ease with which these people committed such fraud, the whistleblower came to us with their concerns. Our whistleblower recounted witnessing an incident where an athletic coach actually described to parents how to go about falsifying a set of IRS tax forms in order to be assured a full Pell Grant if ever the application were checked for accuracy by the Office of Financial Aid. Our subsequent research into this matter has alerted us to the various weaknesses in this particular arena of federal benefits.

Institutions of higher education, and in particular the financial aid officers, who ultimately approve the Pell Grant applications, have no way to accurately verify the validity of the information provided by the Grant applicants. Despite the ominous warning on the front cover of the Free Application for Federal Student Aid (FAFSA) threatening fines and/or imprisonment for purposely giving "false or misleading information" on the application, it appears, after our inquiry into the Federal Student Aid application process, that no effective deterrent exists for those bent on receiving Pell Grants through deception. Many believe, and rightly so, that their actions are unlikely to be exposed, given the lack of verification allowed.

As it stands, the Department of Education depends on the individual institutions to verify that students have given accurate information on aid applications. In fact, Federal law actually requires universities to verify at least 30 percent of the applications submitted by aid recipients. Unfortunately, while many colleges require that students submit copies of their federal tax records as a means of verification, the schools have no way of knowing whether those documents are the same as those that were filed with the Internal Revenue Service. With current Privacy Act laws, loan officers can do nothing more than trust whatever information is given by the applicant, even if it involves phoney IRS tax forms.

Representative Maloney's bill, HR 2347, speaks directly to this issue by ensuring that the Education Department, when determining the eligibility of Pell Grant applicants, has the means, by checking with other State or federal agencies, to verify the claims made by the applicant in their grant application, eliminating the fraud being imposed on the government's coffers by various unscrupulous participants in the Pell Grant system. Let me stress that this verification is crucial to making the Pell Grant Program an efficient and effective operation. We believe that the IRS would be a natural source for that information. In fact, the Department of Education Inspector General has also endorsed this recommendation.

Last month, the Chronicle of Higher Education reported a case, very similar to our own whistleblower's, in which Federal officials charged an Ohio consultant and 22 parents of students attending Ohio colleges with fraudulently obtaining almost $200,000 in Pell Grants over a period of five years. Allegedly, this consultant had helped these parents, for a fee, to falsify parts of their applications for Pell Grants and Supplemental Educational Opportunity Grants. According to the Chronicle, investigators said the parents had understated their incomes, included fictitious dependents, and described non-existent special circumstances, such as guardianships, divorces, and estrangements of children.

In 1992, in a striking example of Pell Grant fraud, the Department of Education and its Office of Inspector General uncovered a consulting office peddling information to students otherwise ineligible to receive Pell Grants on how to falsify the information on the FAFSA, as well as how to fool the verification process for aid applications. Specifically, Mack Walker, of the Walker Education Center, sat down with students whose parent's income was too high to be eligible for any kind of Federal financial aid. He told them that thousands of dollars in aid was available, if only they were willing to break the law and lie on their application. When the student consented and paid the $350 to Walker, he and his employees drew up false income records for the family, who invariably received Federal aid in the form of a Pell Grant. Walker made more than $350,000 from his operation. Pell Grants awarded to clients of his between 1986 and 1992 totaled over $2 million.

This type of abuse is widespread. The General Accounting Office reported last January that during the award year of 1995-1996, $109 million in Pell Grants was over-awarded because of under-reported gross income on the part of the students. One applicant, who had reported over $1.3 million in adjusted gross income on his official income tax return, claimed on his Pell Grant application to the Department of Education that he had no income at all, resulting in a full Pell Grant.

These sorts of activities have contributed to losses by the Pell Grant Program and other Federal Benefit Programs running into the hundreds of millions of dollars. Not only are the taxpayers being hurt by this fraud, but more importantly, the needy students for whom the Pell Grants were intended are being hurt as well. Low-income individuals whose only chance at higher education is federal financial aid are being swindled out of their futures simply because they were honest and those who would rob the government's pocketbook were not. This must not be allowed to continue. By providing for smoother government information sharing, this bill closes the loophole that has allowed fraud to run rampant. The Committee's proposed Federal Benefits Verification and Integrity Act is the major step toward a remedy that until now has been lacking.