Mr. HAST. The Department postsecondary review people brought that to our attention from a computer run on addresses of Pell Grant students. We then went to the school in order to determine if it was a situation where people may be living there. We went to the school principal and he told us that he wanted to talk to his attorney and would get back to us. Being in the school, although we did not inspect the entire school, it was an operating elementary school, and did not appear to have any type of a residence capacity.

Senator COHEN. When the students found out that their names were being used without their knowledge, as far as being applicants for Pell Grants, did they, to your knowledge, contact the schools about the situation or did the schools contact them? What happened, as far as you know?

Mr. HAST. I do not have any direct knowledge of students contacting schools or schools contacting students. At the end of this portion of the investigation, it became obvious that some of the students knew we were coming and had been prepped with answers. The answers changed significantly towards the end of our investigation.

Senator COHEN. After they acquired their attorneys or obtained their attorneys, did they become more or less cooperative?

Mr. HAST. The only students that we ever spoke to with attorneys had attorneys obtained by the school. And we provided the names of the students to the school and the school then said that the attorney would come with the students for our interviews. The first time that happened, we had secured an interpreter. No one showed up. We then negotiated further and the second time, two out of five students came with an attorney at which time they were interviewed. However, they agreed to provide affidavits. We provided an affidavit to them for correction and that was many months ago, and those affidavits still have not been returned.

Senator COHEN. Just very briefly, I am not sure which witness made the reference-but the reference was made to brokers or legitimately contacting brokers, I am not sure exactly what the phraseology was. But tell me about how brokers are used in this particular case? Do brokers contact schools and say, I would like to work on your behalf to secure Pell Grant applications for students who would like to come here, or do the schools contact brokers who may or may not be interested in taking advantage of abusing the Pell Grant system?

How does that work, No. 1, and No. 2, what is your opinion about the propriety of using brokers to secure Pell Grant applications and grants?

Mr. HAST. I believe that in the latest Department of Education regulations, although I could not quote the cite, it is no longer legal for schools to use brokers in order to obtain students.

Senator COHEN. Is that by regulation or by statute?

Mr. CRAWFORD. I believe it is by statute, Senator Cohen.

Mr. HAST. But in the investigation that we conducted in the first case, the Immigration Department arrested and raided an immigration facilitator. In New York there are people that help the immigrants coming in to obtain all the necessary documentation and get into the various programs that they are eligible to participate

in. This individual when he was raided, had a great deal of records seized. Part of those records showed that for almost everyone that he worked with, there was a Pell Grant file. The U.S. Attorney's office in the Southern District of New York, knowing about our investigation, asked us if we would be interested. We then talked to Immigration and obtained the Pell Grant type documents.

We went out then and interviewed many of the people whose names were in these files. Some of them did not know that they had received a Pell Grant. Others-while they knew they were going to a school-did not realize they were receiving Federal aid. Many of the documents in there were things such as letters from employers stating that the individual was employed and how much money that individual was making. When we went to those employers, they said that the letterhead was false; that the signature on the document was not theirs; and that in some cases the individuals never worked there and in other cases, that the amount of money that the document said they made was not correct. So basically many of the documents were false for obtaining Pell Grants. We also found in the files of this broker, checks from one of the schools that we investigated for $250 for many of the individuals. When we interviewed the secretary of this broker,1 she stated that she and the broker would sign the names of the employers on these employment letters and that she would make up the letterhead many times from business cards and that she would put in the information that the broker asked her to put in. She said the broker would then give her Pell applications in blank and a file from the Immigration individuals and she would then fill out the Pell Grants. Some of those were signed in blank; some of them were not signed, but were signed later. This individual was negotiating to cooperate when he fled the country. And he was negotiating to cooperate on Pell Grant fraud, saying he could give other brokers and other schools that were involved. He then fled.

Senator COHEN. Do you have an opinion as to whether or not this type of fraud and abuse is unique to either New York City, to the religious institutions who are under examination or investigation or is it more endemic? Do you surmise that this problem is Nationwide or is it confined to certain regions or to specific types of institutions or is it much bigger than what we see here on these charts? Mr. HAST. I believe it is probably bigger than we see here, although we have not conducted sufficient investigation. But in going back to prior investigations, I think Nationwide, we had found that there were individuals that were going out and finding students and separate schools for a commission.

Senator COHEN. Do you have any idea of how many institutions have over 85 percent of their revenues coming from Federal sources?

Mr. HAST. No, I do not.

Senator COHEN. Was that any part of the investigation?

Mr. HAST. No, I do not have that information.

Senator COHEN. That is all I have, Mr. Chairman.

Chairman NUNN. Thank you, Senator Cohen. A couple of followup questions. You used the term yeshiva several times relating to

1 See Exhibit No. 89 on page 453.

these schools, Mr. Wheeler. Could you define that term? I want to make sure we use the term in the way you mean it and it is not interpreted in any other way.

Mr. WHEELER. Yes, Mr. Chairman. We used the term yeshiva in this investigation because the 37 institutions identified to us refer to themselves as such. In terms of applying the term yeshiva for our purposes, it applies only to the 37 institutions that were identified to us. It does not at all apply to many other fine institutions of higher learning such as Yeshiva University.

In our report itself, we use the Random House College dictionary definition which states that a yeshiva is an orthodox Jewish school of higher instruction in Jewish learning. The schools that we described as yeshivas in this testimony fit this definition. Again, our term here applies only to the 37 identified to us and is not meant or intended to apply to any other institutions. There are many yeshivas that are well known and highly respected institutions of higher learning.

Chairman NUNN. Thank you for clarifying that, Mr. Wheeler. Mr. Hast, I believe when we were discussing the Beth Rochel Seminary that was the subject of your testimony you mentioned that there was an accountant who said that the financial records were not adequate. He was the accountant who had done them. Would you go into that again?

Mr. HAST. Yes. We interviewed the accountant that performed the certified audit of Beth Rochel that was requested by the Department. He told us that the statements that he prepared were qualified and that he spoke to a Department official and stated that all of the funds were commingled and that he would have to issue a qualified statement; that he was not able to develop an opening balance because of the fact of the commingling, and that he was not able to account for 153 some odd thousand dollars that was in the statement. Therefore, he was going to have to qualify the statement. He told us that anyone receiving that statement should have realized that it was valueless in determining the financial condition of that institution.

Chairman NUNN. Did he tell the Department of Education that? Did the accountant make it clear to the Department of Education that this statement that he himself had issued was of no value?

Mr. HAST. I do not know that he said it in those words, but he told us that he spoke to a Department of Education official and told him that it was a qualified statement and that the funds were commingled and he was not able to give what would be an unqualified audit.

Chairman NUNN. Did he tell you the name of that official or the position?

Mr. HAST. Yes, he did.

Chairman NUNN. Did you interview that official?
Mr. HAST. Yes, I did.

Chairman NUNN. What was the result of that?

Mr. HAST. The official stated that he speaks to many, many representatives of schools and he did not remember that particular conversation, but at the time that they were operating in, it was the Department's philosophy to get schools into the program, not keep them out.

Chairman NUNN. So that did not seem to disturb that official? Mr. HAST. It did not.

Chairman NUNN. Senator Cohen, do you have any other questions? Mr. Wheeler, Mr. Hast, Mr. Crawford, do you have any other points you need to make this morning or would like to make? Mr. CRAWFORD. No, sir.

Mr. WHEELER. No, sir.

Chairman NUNN. We appreciate your work and we look forward to continuing to work with you. I am afraid this problem is a lot bigger than we have seen so far, based on past experience in these areas. We thank you for being here.

Mr. HAST. Thank you, Mr. Chairman.

Chairman NUNN. Our next panel of witnesses this morning are members of the Subcommittee Staff, Staff Counsel, Alan Edelman; David Buckley, the Subcommittee's Chief Investigator; and Staff Investigator, Scott Newton. And they will summarize the results of their investigation of the Pell Grant program thus far. I will ask each of you before you take your seat if you will raise your right hand and then we will swear you in as witnesses.

Do you swear the testimony you will give before this Subcommittee will be the truth, the whole truth and nothing but the truth, so help you God?

Mr. EDELMAN. I do.
Mr. BUCKLEY. I do.

Mr. NEWTON. I do.

Chairman NUNN. Thank you. Mr. Edelman, I believe you are going to lead off this morning. We appreciate all the hard work that all of you have done.

TESTIMONY OF ALAN EDELMAN, COUNSEL, PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

Mr. EDELMAN. Thank you, Mr. Chairman. We have a rather lengthy statement which we will attempt to summarize this morning.

Chairman NUNN. Let me put in the record right after Senator Pell's statement, a statement that Senator Kennedy has submitted and a statement that Senator Byron Dorgan has submitted. They will be part of the record without objection.

Mr. EDELMAN. We also ask, Mr. Chairman, that the Staff's complete statement be submitted for the record.

Chairman NUNN. Your complete statement will be part of the record. Are all parts of that statement public at this point?

Mr. EDELMAN. Yes, sir. Mr. Chairman, at your direction, the Subcommittee Staff and U.S. General Accounting Office's Office of Special Investigations, have been conducting an investigation of allegations of fraud, abuse, and mismanagement in the Federal Pell Grant program. To date, our investigation, which is still ongoing, has uncovered what we believe to be systemic weaknesses in the largest direct Federal student aid program. These weaknesses have enabled some schools to reap millions of dollars of profits while abusing and defrauding the Pell Grant program.

Last year the Federal Government gave out $6.1 billion in Pell Grants to over 4 million undergraduate students. While we hope

that most of these funds were applied properly, we know that millions of dollars were not.

Chairman NUNN. At this stage, do we have any way of knowing or even estimating or even guessing with any kind of educated guess how much of this Pell Grant program is now in what we would call the waste, fraud, abuse area?

Mr. EDELMAN. Unfortunately, Mr. Chairman, I do not think we really do. We have heard ranges. There have been statements in the press attributed to individuals within the Department that have claimed that as high as 90 percent of the proprietary school sector funds are in the category of waste and abuse.

Chairman NUNN. But we do not know ourselves?

Mr. EDELMAN. We do not know ourselves.

Chairman NUNN. You do not have any way of judging that now? Mr. EDELMAN. I do not think so on the basis of our investigation to date. It has been 3 years now since the Staff reported to the Subcommittee on the results of its investigation into problems in the Federal guaranteed student loan program. That investigation revealed widespread fraud and abuse on the part of many key participants in the program. In addition, the investigation revealed serious deficiencies in the role played by the Department of Education in administering and overseeing the loan program and in the roles played by State licensing authorities and independent accrediting agencies in approving schools for participation in the loan program.

Today, the Staff is back once again to report that our continued monitoring of Federal student aid programs has uncovered yet another program which appears vulnerable to serious abuse and fraud. Our investigation to date of the Federal Pell Grant program reveals a program which appears to evidence many of the same systemic weaknesses which plagued the student loan program.

The Staff's investigation is ongoing. Because of the serious nature of our findings, however, and their striking similarity to the Subcommittee's findings with respect to the loan program, we felt it important to report our concerns to the Subcommittee at this stage. The Staff will continue its investigation and will report further to the Subcommittee.

The results of our work to date, though, leads the Staff to believe that the Pell Grant program is beset by major systemic weaknesses which undercut the Government's ability to deter, detect and pursue fraud and abuse by program participants. The checks and balances which were designed in theory to protect the program and ultimately the taxpayer, appear in practice to be ignored or ineffective.

In particular, the Staff is concerned about the following areas. The program's gatekeeping functions designed to prevent ineligible institutions from gaining access to the program are not working. The Department of Education's program review process designed to ensure statutory and regulatory compliance by institutions, once they have gained access to the program, is ineffective at detecting abuse because of inadequate manpower, resources and training.

Finally, procedures to audit the financial aid records of institutions which have left the program, designed to identify possible abuse or fraud and to lay the foundation for actions to recoup mon