Report I960207 Summary - March 1998

Investigative Report


Conflicts of Interest and Mismanagement of Federal and State Funds at the California Student Aid Commission

The California Student Aid Commission (CSAC) oversees the Federal Family Education Loan Program (FFELP) in California. In fiscal year 1996-97, California received $331 million in federal funds for this program, moneys that are predicated on CSAC's compliance with federal requirements. The members of the CSAC's governing commission also have a responsibility to the governor and legislative leaders who appoint them to ensure that funds are spent properly and economically.

We received an allegation under the Reporting of Improper Governmental Activities Act that an official of the CSAC is improperly employed at the EdFund-a nonprofit corporation established to assist the CSAC in its administration of the FFELP. The complainant also alleged that the official is improperly receiving compensation from the EdFund. Finally, the CSAC allegedly made an improper loan to the official.

We investigated and substantiated these and other improper activities. Specifically, we found the following:

Agency Response

Because the governor appoints most of the 15 members of the commission, we sent our report to the Governor's Office for response. The Governor's Office strongly disagrees with our interpretation of the various laws cited in the report and does not believe that the executive's dual employment violates the law. Nevertheless, it has recommended that the commission end the executive's dual employment and that the executive devote all of his energies to the EdFund. The commission accepted the executive's resignation from his CSAC position, effective March 16, 1998.