State fraud of education funds

By: Tonya Mead, CFE, CHFI, PI, MBA, MA Educational Psychology

Perhaps the reform, re-organization and right-sizing of the federal education bureaucracy has its benefits.  For instance, the Office of State Support under the federal U.S. Department of Education was created in 2014 based upon the merger of disparate technical assistance programs to support Title I ,  Title II and Title III education programs.

For background,  Title I funds provide support to schools with large numbers of students from low income families. Title II funds support services for the disabled and they help institutions hire, train and retain high quality teachers. Title III funds are used to help educate students whose native and/or home language is other than English.  To obtain access to these federal funds, states must submit quarterly and annual reports. Often, to maximize return, states can find creative ways in which to report the data, mis-report, and manipulate the data, as mentioned throughout in my book (pages 36, 47, 49, etc) and this blog. Sometimes they can use running averages of financial data  and estimations rather than actual expenses incurred, as this article will show.

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Sorry, back to the reorganization. At the time of the organizational re-shuffling, the move was highly regarded as a way to “cut down on redundant tasks for state officials, and make federal programs more user-friendly for states.” (see Ed Week, para 3, line #3). However, there was one disgruntled politician (Sen. Lamar Alexander), who viewed the right-sizing effort as an impediment to states’ autonomic decision-making.  According to Alison Klein and Andrew Ujifusa of Ed Week, Sen. Alexander said, “What states need is not centralized support for the new policies and procedures dictated by the National School Board, but freedom from Washington and a return of all the most important decisions about how to best educate 50 million students in 100,000 public schools.” (para 7, line #1).


I guess, I have a problem with the flippant use of the word, “freedom.” Freedom is not free. It comes with a cost. Ask any military solider or law enforcement officer. The Google online dictionary search defines freedom “as the power or right to act, speak, or think as one wants without hindrance or restraint.” Which brings me to the topic of this article:  fraud.  The National Institute of Justice finds that “the certainty of  being caught is vastly more powerful deterrent than the punishment.” (para 4). Conversely, the risk of fraud is greatly increased when potential perpetrators believe that their criminal acts (in a laissez-faire environment) will not be detected. Can we say that a laissez-faire attitude offers the fruits of freedom without the corresponding control mechanisms (surveillance, monitoring, auditing or observation) to guide behaviors?

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Sometimes I ponder about the education policy platforms of politicians and muse that in the absence of even the minimal control mechanisms, the stated desire for individuals and institutions to act without hindrance or restraint and the politicians who purport to support this view of unmeasured restraint, can result in chaos. To me, chaos is diametrically opposed to a civilized society.

Civilized Society or Chaos?

Professor Martin of Radford University presented before the International Conference of Chief Justices of the World in Lucknow, India, December 2012. While there he compared civilized society and barbarianism by way of referencing the philosopher, Immanuel Kant. Martin stated, “by the 18th century, democratic theory and philosophy of law emerged as systematic elaborations on the nature of legitimate government and the rule of law, both still considered as being at the heart of human civilization.” (para 3, line #1). The article goes on to explore sovereignty of independent nation states and universal law. These ideas allow one to reflect upon federalism here at home. Without the shared alliance of power  between states and the national government and unwavering enforcement of all our laws by these state and local agents, our system would be in peril.

Fraud, Waste and Abuse

So what does all of this have to do with fraud? Just because one supports the right to life, liberty and property  does not mean that adequate control systems should not be constructed. It does not translate to the dismantling of such under the guise of freedom.  There was pushback from Sen. Alexander regarding the creation of the Office of State Support in 2014. By 2017, however the reorganization may have paid off. Some state education agencies have been informed by this new office that they may need to repay money based upon an audit to take place early next year.  New Hampshire has already been alerted to the potential of a $3 million repayment request based upon “potential unallowable expenditures or instances of waste, fraud, or abuse.” (para 7).

Federal education officials “concluded that the state [New Hampshire] did not adequately monitor federally funded programs at the local level or have accounting systems in place to ensure compliance with federal requirements by local school districts.” (para 6). One practice in violation of federal regulations was to report upon an estimated time spent and total salary for each employee assigned to various projects rather than use the actual time worked and the actual salary amount for each employee.

Would this accounting method fly in the private sector? One would think not.  The CPA hired to audit the state agency’s books stated that he directs  “employees [to] now keep track of the hours they work on programs; we charge the programs for the level of effort expended; and we support that with the underlying documentation for the time claimed.” (paraa14). Not that any one actor in the vast educational bureaucracy is inherently evil. However, it is painful to see that as taxpayers, how we accept fraud, waste and abuse as par for the course.

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Fiscal Irresponsibility and other tactics of waste

As I wrote in my book, there are other ways in which states, districts and local schools waste taxpayer funds in the absence of strong accountability and internal control measures. “The inflation of administrative staff as a portion of the number of students and faculty is another component of fiscal irresponsibility. The New England Center for Investigative Reporting analyzed staffing data from 1987 to 2011 and determined that “universities and colleges collectively added 517,636 administrators and professional employees, or an average of 87 every working day” (as cited on page 19, para 1).

I continue, “institutions of higher learning are not the only entities with problems related to fiscal irresponsibility, poor management, and porous internal control systems. During the course of routine A-133 audits, independent auditors examined the internal records of primary and secondary schools as grantees of the U.S. Department of Education (cfda 84.0). During the August 2014 to December 2015 reporting period, a number of entities (26) were cited for significant deficiencies and material weaknesses. “(as cited on page 19, para 2).

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It makes one shudder to think that in the absence of some measure of the rule of law; chaos (war was the term used by Kant) reigns. It is a shame that a federal level re-organization was the catalyst for sound accounting and compliance practices at some state, district and local level found deficient. Thanks for reading and for your time.

Tonya J. Mead, CFE, CHFI, PI, MBA, MA, Certified K-12 Administrator and School Psychologist is author of Fraud in Education: Beyond the Wrong Answer and president of Shared Knowledge, LLC