The Public Eye

Reports from the Bee's investigative team

August 17, 2010
Audit of EdFund finds questionable spending

A recent audit found that EdFund, the student loan guaranty agency that federal authorities want to close, inappropriately spent nearly $8,000 on coffee, gift cards and lunches and $71,000 on prohibited political lobbying.

"These types of expenditures do not benefit students, and thus are inappropriate uses of state funds," wrote the state Finance Department's Fred Klass of in a July 16 letter to the head of EdFund's board.

Finance audited EdFund's expenditures from November 2008 through October 2009. It found EdFund billed the California Student Aid Commission for unallowable expenses. Among them:

• $70,891.60 to a lobbying firm to urge Congress to maintain the role of guaranty agencies in legislation meant to change the student loan industry.

• $4,334.25 for Starbucks coffee service in the office, including coffee, tea, hot chocolate and condiments.

• $1,598.19 in employee appreciation lunches.

• $1,475 in gift cards for employee recognition.

• $562.02 for condolence flowers, pre-paid parking for an employee event, an ice machine repair and unallowed travel expenses.

EdFund, a quasi-public agency in Rancho Cordova, insures a $38 billion portfolio of federal student loans made by private banks. When students default, EdFund repays the banks, then gets reimbursed by the federal government. Last month, citing EdFund's problems, the U.S. Department of Education said it wants to close it this fall.

- Laurel Rosenhall

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About The Public Eye

Welcome to The Bee's newest blog: Public Eye. In the coming months, you will see us breaking news here as well as following up on investigations we have published with tidbits, news breaks and behind-the-scenes descriptions of our news-gathering process. Know of a wrong we could right? Send our fraud squad your tips at: fraudsquad@sacbee.com.

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