Top Audit and Program Review Findings and How to

Avoid Them

Martina Fernandez-RosarioWilliam (Bill) Swift

Session 7 – San Diego

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External Review Process• Audits (Annual & OIG) • Program Reviews (ED &GA)

Purpose of External Reviews• Ensure Institutions Properly

Administer Title IV Programs• Fulfill Oversight Responsibilities

for Title IV Programs

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Audit Findings: Most Common

• Late Refund/Returns to Title IV Account• Incorrect Return of Title IV Funds Calculation• Entrance/Exit Counseling Deficiencies • Enrollment Report (SSCR) Issues• Repeat Finding-Failure to take Corrective Action• Auditor Opinion Cited in Audit• Student Credit Balance Deficiencies • Verification Violations• Pell over/under Payments

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Late Refund/Returns to Title IV Account

• Maximum timeframe for institution to return unearned funds is 45 days– Applies to program funds and lenders– 34 CFR 668.22(j) changed from 30

days per HERA • Timeliness generally determined by

examination of institutional ledgers– Have funds been restored to program

account?

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Late Refund/Returns - Consequences

• School may Fail Financial Responsibility• Financial Responsibility

– School must meet Refund Reserve Standards in 34 CFR 668.173•Satisfy the requirements for a public institution;

•Located in a state with a tuition recovery fund and be contributing to that fund; or

•Makes returns in a timely manner – majority of schools meet this requirement

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Late Refund/Returns - Consequences

• Compliance thresholds for making timely returns– Not in compliance w\Refund Reserve

Requirement if in an audit or program review student sample, untimely returns made for 5% or more of students

•Sample includes only students for whom school was required to make a return

•No violation if school is cited for one or two students or less than 5% of sample

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Late Refund/Returns - Consequences

• Irrevocable letter of credit (LOC)– Required if school fails 5%

compliance threshold and is not a public school or in a state with a tuition recovery fund

– LOC is 25% of unearned Title IV funds school was required to return in latest fiscal year

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Late Refund/Returns - Consequences

• If LOC is Required & School Agrees with Finding–Submit LOC

• If School Disagrees may Delay Submission of LOC if School Submits Documentation:–Showing timely returns–Showing the failure was beyond the school’s control 34 CFR 668.173(e)(2)•Must be submitted within timeframe for LOC •If Denied, School is given new LOC due date

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R2T4 Calculation Not Performed/Documented

•Why not?– Cash Flow– Lack of Administrative

Capability•No Acceptable Justification

– Serious Consequences including Potential Inspector General Criminal Investigation

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Entrance/Exit Counseling Deficiencies

• Seek support from lenders/GAs or ED (Direct Loan Schools)

• Exit counseling material must be mailed to students who did not participate in person within 30 days of learning they did not complete – Certified mail not required but

materials proving information was sent is required

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Enrollment Reporting (SSCR)

• Use of third-party servicers– Ensure transmittal of NSLDS roster is

synchronized with delivery of school file to servicer

– Failure to return submittal file within 30 days results in an overdue letter - School responsible for timely response to NSLDS for 3rd-party servicer

• Enrollment Reporting documentation– Acknowledgement/Error File is adequate

proof– Retain record of file for audit purposes

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Enrollment Reporting (SSCR)• Use proper status code: A, D, F, G, H, L, W, X

– Graduated student reported as G not L or W• Graduated effective date- date student

completed course requirements, not date diploma/degree presented

• Summer Break–do not report students who intend to return in fall as W (withdrawn)– Student who fails to return must be reported

as W within 60 days of fall term start (effective date is last date of attendance)

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Repeat Finding-Failure to Take

Corrective Action • Indicates Lack of Administrative

Capability• Corrective Action Plan (CAP)

should have indicated corrective steps taken– What procedures are in place

to ensure CAP is carried out?

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Auditor’s Opinion Cited in Audit

• Attestations • Areas of concern in financial

statements• Areas of concern in compliance

audit• For A-133 schools, opinion could

be on anything the auditor is reviewing– Not limited to Title IV issues

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Student Credit Balance Deficiencies• Credit balance must be eliminated

within 14 days after balance occurred 34 CFR 668.164(e)– If before 1st day of classes of payment

period, 14 days from start of payment period

• ED rules cover only Title IV credit balances

• Credit balances that result from retroactive withdrawals are still subject to rules

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Verification Violations

• Verification requirements are well known– Errors generally the result of an

oversight• Verification regulations are

specific as to what untaxed income must be verified– SS benefits, IRA/Keogh deductions,

foreign income exclusion, EIC, interest on tax-free bonds

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Pell Grant Over/Under Payment

•Generally the result of improper determination of enrollment status–Example: Student was full-time in fall drops to half-time in spring, but receives a full-time disbursement for the spring term

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Other Audit Findings-High Dollar

• Loan Discharges Paid due to Closed Additional Location

• FISAP Reporting Errors

• 90/10 Requirement Not Met – For Profit Schools

• FFEL Not Prorated

• Overaward – Financial Need Exceeded

• SAP Requirement Not Met• Audit Report Not Submitted – Closed School

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Audit – Finding Incorrect• Ask auditor which regulation or law has

been violated/discuss a reasonable resolution– Indicate in CAP reasons why the

exception is erroneous•Necessary for audit resolution process•Cite regulation or law in support of your assertion

•Explain in detail why the exception is incorrect

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Program Review: Most Common Findings• Verification Violations • Late Refund or Incorrect R2T4 Calculation• Student Credit Balance Deficiencies• Lack of Administrative Capability• Inconsistent/Missing Information in Student File• Account Records Inadequate or Not Reconciled• Leave of Absence Deficiencies

• Improper Disbursement-PELL Disbursed Before

Midpoint• Independent Student Status Not Documented• Not Meeting Campus Crime Clery Act

Requirements

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Inconsistent Information-Student’s File

• Resolve all conflicting information prior to disbursing aid 34 CFR 668.16(f)

• Required to view all subsequent ISIR transactions

• Discrepant tax data – School must know:– Whether person was required to file– Correct filing status– Individual may not be claimed as an

exemption by more than one person

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• $0 Income is Not Automatically Considered Conflicting Information

• Required to be Aware of Conflicting Information in Other Campus Offices – Ex. Student Indicates has HS Diploma on

FAFSA, but Admissions Form Shows No HS Diploma

• If School Collects W-2s, tax Schedules, Tax Returns for those not Selected for Verification, etc., it is Responsible for all Information

Inconsistent Information-Student’s File

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Account Records Inadequate or Not Reconciled

• Maintain all Student Eligibility documents

• Maintain financial records that reflect all program transactions

• Account for the receipt and expenditures of all Title IV funds

• Reconcile Monthly GAPS, General Ledgers, COD, NSLDS, Bank Statements

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Leave of Absence Deficiencies

•Approved LOA [668.22(d)] not treated as withdrawal

•School must have “formal” policy–Written and Publicized–Students must provide reason: written, signed, and dated request

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Improper Disbursement-PELL Disbursed Before Midpoint

• Schools may not Disburse More Than 50% of Annual Award Prior to Student Completing 50% of the Academic Year

• School must have Written Procedures to Ensure Students are being paid the correct PELL Award in each Pay Period

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Independent Student Status Not Documented

• School must document reason for Dependency Override

• Case by Case that is based on Unusual Circumstances

• Examples that are Not Unusual– Parents refusing to pay or unwilling to

provide verification documentation– Parents not claiming student for IRS– Student Demonstrates Self Sufficiency

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Not Meeting Campus Crime Clery Act Requirements

• All Schools Required to Provide Annual Campus Security Report to Students and Employees (3 Most Recent Years)

• Statistics from Campus Security Authority or Local Police Agencies

• Includes: Occurrences On Campus, In or On Non-Campus Property, or Public Property

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Campus Crime Clery Act Resources

•Campus Security Handbook & Other Information:

www.ed.gov/admins/lead/safety/campus.html

•Regulations: 34 CFR Section 668.46

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Other PR Findings-High Dollar

• Ineligible Program/ Location -Approval Requirements Not Met

• Loan Discharge Paid (CL, FC, Refund)

• Ability to Benefit Violations • SAP Policy Not Adequately

Developed or Monitored

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Ineligible Program/Location -Approval Requirements Not Met

• Changes that Require Written ED Approval (Notify-10 Calendar Days)

• Accrediting Agency– State Authorizing Agency– Institutional Structure– Non-degree programs outside scope– From Clock to Credit– Additional Location-Offers > 50%

and Required to Apply

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Ineligible Program/Location -Approval Requirements Not Met

• Changes that Require Only Notification (Notify-10 Calendar Days)

– Name– Officials & Directors– Third Party Servicers

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Loan Discharge Paid

• Closed School (Main or Additional Location)– Students Enrolled Within 90 Days

• False Certification– Forged Signatures, ATB

• Refund• Discharges Paid Become Liability

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Ability to Benefit Violations

• Must Properly Document Student File• Tests Must be Administered by

Independent Approved Tester• Tests Cannot be Altered or Scored

Incorrectly• Test Results in Student File Must

Match Those from the Independent Approved Testing Agency

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SAP Policy Not Adequately Developed or Monitored

• Establish, Publish, and Apply Satisfactory Academic Progress Policy

• Conforms with Accreditor’s Policy• Same or Stricter than Non Title IV

Student SAP Policy• Consistently Apply to all Students• Determine Prior to Disbursing Aid

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PR -Finding Incorrect

• Ask program reviewer which law or regulation has been violated/ discuss a reasonable solution– Indicate in Program Review

Response why finding is erroneous– Final Program Review

Determination will inform school of ED’s decision – Appeal Rights

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Happy Fall Season!!

We appreciate your feedback & comments

Martina Fernandez-Rosario (415)-486-5605martina.fernandez-rosario@ed.gov

William (Bill) Swift (646) 428-3755william.swift@ed.gov