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PublicationDate: 6/1/95 AuditGuideType: Audit Guide for Schools SectionNumber: II SectionTitle: Required Management Assertions, Compliance Requirements and Suggested Procedures PageNumbers: INTRODUCTION This section: 1. Sets forth the minimum standards, which are the subject of management's written compliance assertions; 2. Describes the related compliance requirements; and 3. Provides guidance on the general approach the IPA should consider in designing and carrying out procedures in his or her examination of management's written assertions. As discussed in Section I, the suggested procedures in this section are not intended to be a complete set of procedures to satisfy the engagement objectives, nor are they intended to supplant the IPA's judgment about the testing necessary for the IPA to report on management's assertions. To perform the engagement, the IPA should obtain, read and/or have available: - 34 CFR Parts 600, 668, 674, 675, 676, 682, 685, 690 (Contained in 34 CFR Part 400 To End, revised as of July 1, 1994 and final regulations issued for 34 CFR Parts: 690 on November 1, 1994; 600, 668 and 682 on November 29, 1994; 674 and 682 on November 30, 1994; and 668 and 685 on December 1, 1994.) - ED "Dear Colleague" letters - The institution's: - Catalog - Federal Cash Transaction Report PMS 272 - Monthly reconciliations for FDLP - Student Status Confirmation Reports (SSCRs) - Final Student Payment Summary (SPS) The IPA should be familiar with the relevant statutes and sections of the CFR to obtain a complete understanding of the compliance requirements. Specific requirements may change periodically. IPAs should be alert to those changes. An excellent resource for updated SFA information is the annual Federal Student Financial Aid Handbook. ALL COMPLIANCE TESTING IS BASED ON THE AWARD YEAR ENDING JUNE 30TH DURING THE ENTITY'S FISCAL YEAR. 1. INSTITUTIONAL ELIGIBILITY AND PARTICIPATION Required Management Assertion [INSTITUTION] COMPLIED WITH THE INSTITUTIONAL ELIGIBILITY AND PARTICIPATION COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. Compliance Requirements To participate in the Title IV programs, an institution must be an eligible institution of higher education, a postsecondary vocational institution, or a proprietary institution of higher education and must have: - ED Institution Approval Notice (formerly Institutional Eligibility Notice) that lists approved locations and eligible programs covering the award year (34 CFR 600.10); - Eligibility does not extend to any locations that an institution establishes after it receives its eligibility designation, if the institution provides at least 50% of an educational program at that location - unless the institution notified ED of the location and ED does not require an eligibility application for that location; - Programs added which are greater than 600 clock hours may be considered eligible programs provided they satisfy eligibility criteria described in 34 CFR 668.8 (institutions are liable for Title IV funds disbursed for programs determined ineligible); programs less than 600 clock hours must be pre- approved by ED and must meet, if not a graduate or professional program, the qualitative factors of a 70% completion rate and a 70% placement rate; - Accreditation letter from its accrediting agency covering the award year (34 CFR 600.5, 600.11); - Been licensed throughout the award year to conduct business or programs by the jurisdiction/agency in which it is located, if required (34 CFR 600.5); - Not filed for bankruptcy (34 CFR 600.7); - Not pled guilty to, or pled nolo contendere to, or been found guilty of, a crime involving Title IV funds or been judicially determined to have committed fraud involving Title IV funds. This includes the institution, any one of its owners, or its chief executive officer (34 CFR 600.7); - Not paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments, financial aid to students, or student retention [34 CFR 668.14(b)(22)]; - Not had for the award year (34 CFR 600.7): - More than 50% of its courses as correspondence or telecommunications; - 50% or more of its regular students (student enrolled for the purpose of obtaining a degree, certificate or diploma) enrolled in correspondence courses; - 25% or more of its regular students incarcerated; - 50% or more of its regular students without a high school diploma or the recognized equivalent and the institution did not provide a four or two year program for which it awards a bachelor's or associate degree, respectively; - Notified the Secretary and the accrediting agency within at least 10 days of any change in ownership, if the change results in a change of control as defined in 34 CFR 600.30 and 600.31. The institution is required to notify ED of any violations of the above criteria. Thus, the institution must have methods of determining compliance with the criteria. THE IPA SHOULD IMMEDIATELY NOTIFY THE INSTITUTION AND/OR ITS GOVERNING BODY IF IT IS DETERMINED THAT THE INSTITUTION FAILS TO MEET ANY INSTITUTIONAL ELIGIBILITY CRITERION. THE IPA SHOULD FOLLOW THE GUIDANCE FOR REPORTING IRREGULARITIES AND ILLEGAL ACTS AS DISCUSSED IN THE SECTION I OF THIS GUIDE. Suggested Procedures *1*a. Review, evaluate, and document the institution's methodologies for determining compliance with institutional eligibility and participation criteria. b. 1. Through inquiries of management, identify and report on the AIS (Example C) all locations where education was provided during the award year covered by the engagement period. 2. Compare those locations to the locations on the ED Institution Approval Notice (formerly Institutional Eligibility Notice) which covers the award year and report as a questioned cost all Title IV funds at unapproved locations where greater than 50% of an educational program was offered. 3. Test graduated students' academic records to determine that educational programs were offered and conducted at stated lengths and durations. 4. For short term programs only (less than 600 clock hours), test, for completeness and proper classification, the universes used as the basis for the completion and placement rates to verify they were at least 70% and re-compute the institution's calculations of percentages. c. Obtain and inspect the following to determine the institution was in compliance with its accrediting agency(s): 1. The accreditation letter from the institution's accrediting agency covering the award year; and 2. Any subsequent correspondence covering the award year. d. Obtain and inspect licenses covering the award year: 1. Determine that the institution and its additional locations are properly licensed to conduct business by the jurisdiction in which they are located. 2. Determine that the institution's educational programs are licensed, where applicable. e. Make inquiries of institution's management and obtain, as part of the management representation, written representation that the institution: 1. Notified ED of any bankruptcy filing involving the institution or its parent corporation; and 2. Its owner, or its chief executive officer, has not pled guilty to, has not pled nolo contendere to, or was not found guilty of a crime involving Title IV funds. f. Test payroll and other disbursement records to determine whether the institution paid to any persons or entities any commission, bonus, or other incentive payment based directly or indirectly on success in: securing enrollments, financial aid to students or student retention. g. Obtain from the institution its calculation of its institutional eligibility ratios. 1. Re-compute the institution's calculation; and 2. Test the universes used for completeness and proper classification. h. If applicable, obtain and inspect the institution's notification to ED and its accrediting agency of any change in ownership, and determine that both were notified within 10 days. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. 2.REPORTING Required Management Assertion [INSTITUTION] COMPLIED WITH THE REPORTING REQUIREMENTS, [LIST REPORTS], LISTED IN SECTION II OF THE ED SFA GUIDE. Compliance Requirements Institutions receiving SFA funds are required to ensure that reports contain reliable data, and are presented in accordance with the terms of applicable agreements. Reports required for attestation testing: - Federal Cash Transaction Report PMS 272 (See ED's Recipient's Guide, October 1993), - FDLP monthly reconciliation reports [34 CFR 685.308(g)]: - Cash Summary Record, - Cash Detail Record, and - Loan Detail Record; - SSCRs [34 CFR 682.10(c) and 34 CFR 685.308(b)]. Institutions may receive credit or reimbursement for Pell grant awards that were not previously recognized by ED, i.e., Pell awards never reported or under-reported to the Pell Grant Financial Management Division. Institutions may receive credit or reimbursement if those awards are disclosed in an audit report [34 CFR 690.83(c) or (e)]. Suggested Procedures *1*a. Review, evaluate, and document procedures: - Reporting expenditures on the Federal Cash Transaction Report (PMS 272) - Making monthly FDLP reconciliations - Completing and submitting to guarantee agencies any SSCRs within 30 days. b. Obtain monthly or quarterly Federal Cash Transaction Reports (PMS 272). 1. On a test basis trace and reconcile total receipts (line 2), net disbursements (line 4), and adjustments of prior years (line 5) to the general ledger. 2. Determine that the institution reconciles: a. Ending cash balance reported on the PMS 272 to the bank statements and general ledger, and b. If available, the Final Student Payment Summary expenditures to the PMS 272. 3. Obtain a sample of reconciliations and investigate any large or unusual reconciling items for propriety and explanation. c. Obtain monthly FDLP Cash Summary, Cash Detail and Loan Detail reconciliations and The Reconcilation Guide for Direct Loans. 1. On a test basis determine the institution performed the required reconciliation procedures and submitted to the FDLP Servicer on a monthly basis: a. Cash Summary Records, b. Cash Detail Records, and c. Loan Detail Records. 2. For unreconciled cash transactions (unmatched or mismatched data), determine the institution performed reconciliation procedures including the following: a. Promptly researching and reconciling detailed records; and b. Transmitting correction entries to the FDLP Servicer. 3. On a test basis determine that the institution reconciles the ending cash balance reported on the Cash Summary Record to bank statements and the general ledger. d. Obtain a sample of SSCRs and test that the institution: 1. Correctly reported student status, and 2. Returned the SSCR to the appropriate party within 30 days of receipt. e. Inquire of management to determine if the institution is entitled to receive credit or reimbursement for any Pell grant awards that were not previously recognized by ED. If so, report as finding. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. 3. STUDENT ELIGIBILITY Required Management Assertion [INSTITUTION] COMPLIED WITH THE STUDENT ELIGIBILITY COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. SFA Program Descriptions: See Appendix A for the various SFA Programs' minimum and maximum award amounts. Federal Pell Grant Pell grants may NOT be awarded to students incarcerated in Federal or state penal institutions for enrollment periods that begin on or after September 13, 1994 (Dear Colleague Letter P-94-7). The Federal Pell Grant program makes grants to eligible undergraduate students and is intended to provide a foundation of Federal financial aid. Federal Pell eligibility/ineligibility must be determined prior to awarding other Federal SFA. Students send applications to a central processor, which provides Student Aid Reports (SARs) to applicants. Institutions use SARs and payment schedules to determine award amounts based on the cost of attendance, Expected Family Contribution (EFC), amount of coursework taken in the award year, and length of the student's enrollment during the academic year. ED provides funds for the student directly to the institution. Generally, institutions are responsible for determining, and if necessary, verifying, student eligibility and application data, making accurate award computations and disbursements, collecting overpayments, and submitting accurate and timely reports to ED. Federal Family Education Loan Program (FFELP) FFELP loans are intended to pay for the cost of students attending postsecondary educational institutions. Lenders make low interest loans, but institutions are responsible for completing portions of the loan applications, verifying student eligibility, disbursing loan proceeds, filing SSCRs, and refunding money to lenders. Two FFEL programs are: - Subsidized and unsubsidized Federal Stafford loans, and - Federal PLUS (FPLUS) loans to parent(s) of dependent students. Federal Direct Loan Program (FDLP) Eligible students or their parents may obtain a FDLP to pay for the student's cost of education. ED makes low interest loans to students and/or parents; the loans are disbursed by participating institutions. An institution may simultaneously participate in FDLP and FFELP but A STUDENT OR PARENT BORROWER MAY NOT BORROW UNDER BOTH PROGRAMS DURING THE SAME PERIOD OF ENROLLMENT. An institution may process FDLP as an originating school or as an alternative originating school. The primary difference between the two is the originating school determines its funding needs and obtains loan proceeds under the Automated Clearinghouse/Electronic Funds Transfer (ACH/EFT) method while an alternative originator (an ED contractor) determines the funding needs for the institution and initiates the drawdown under the ACH/EFT method. ORIGINATING SCHOOL - Institutions create a loan origination record containing the basic information necessary to make a loan and initiate drawdown of funds by transmitting to ED a specific Direct Loan funding request. Before disbursing funds to a borrower, the institution must ensure it has a completed, signed promissory note. Disbursement data are transmitted to the Direct Loan Servicer. ALTERNATIVE ORIGINATING SCHOOL - Institutions submit loan origination and signed promissory notes to the alternative originator. Complete promissory notes initiate the drawdown of funds by the alternative originator. Institutions disburse the funds and report disbursement data to the Direct Loan Servicer. Federal Perkins Loan The Federal Perkins Loan provides loans to students. Institutions maintain a revolving loan fund started with a Federal capital contribution and a matching institutional capital contribution. Principal and interest repayments and reimbursements for canceled loans are deposited into this fund. The institution, in turn, is fully responsible for administering the program (i.e., approving, disbursing and collecting the loans). Federal Work Study (FWS) The FWS program provides part-time employment to needy students and is intended to broaden the range of worthwhile job opportunities for students. Students apply directly to and are selected by, the institution. The institution determines the award amount, job placement, and pays the student. Federal Supplemental Educational Opportunity Grant (FSEOG) Program The FSEOG program provides grants to eligible undergraduate students. Institutions select grant recipients based on need; eligibility extends to students with the lowest EFC's with priority to those who are Pell grant recipients. Compliance Requirements A grant, loan and/or work-study award may be made only to a student who meets the following requirements: - Is a regular student of a postsecondary institution (34 CFR 668.7(a) and 34 CFR 600, Subpart A); - Is not incarcerated in a Federal or state penal institution for a period of enrollment beginning on or after September 13, 1994 (Dear Colleague Letter P-94-7); - Is enrolled or accepted for enrollment as at least a half-time student in an eligible program (less than half-time for Pell and campus based is permitted). If the student is not accepted into an eligible program until a remedial program is successfully completed, he/she would not be eligible until accepted into the eligible program (34 CFR 668.7(a) and 668.8); - Is not enrolled in either an elementary or secondary school [34 CFR 668.7(a)]; - Is a U.S. citizen or an eligible non-citizen [34 CFR 668.7(a)]; - Has a valid Social Security number (34 CFR 682.201); - Has financial need (as defined) [34 CFR 668.7(a)]; - Has total financial assistance (both Federal and non-Federal) that does not exceed his/her financial need (34 CFR 674.11, 675.14 and 676.14); - Has signed Statements of Educational Purpose and Selective Service Registration (34 CFR 668.7(a), 668.32, and 668.33); - Does not owe a refund on a Title IV grant [34 CFR 668.7(a)]; - Is not in default on a Federally-funded or insured student loan received from or for attendance at any institution [34 CFR 668.7(a)]; - Is admitted with: (i) a high school diploma, or (ii) its recognized equivalent, or (iii) who is beyond the age of compulsory high school attendance in the state in which the institution is located and has the ability to benefit from the education or training offered [34 CFR 668.7 (a) and (b)]; - Has provided all necessary documentation to satisfy verification (34 CFR 668.54); - Is maintaining satisfactory progress in his/her educational program [34 CFR 668.7(a)]; - Has a valid financial aid transcript from previously attended institutions (34 CFR 668.19). (Additional references are 34 CFR 600, 674.9, 675.9, 676.9, 682.201, 690.6, 674.2, 675.2, 676.2, 690.2, 690.75, and 685.200 et. al.) Institutions must coordinate the Title IV programs with the other Federal and non-Federal SFA programs it administers and must establish controls to preclude awarding assistance in excess of students' financial need. Program and fiscal records must show cost of attendance, student resources, student eligibility and payment, respectively. The institution's administrative capability to manage the Title IV programs is determined, in part, by its management of these functions. Suggested Procedures *1*a. Review, evaluate, and document the institution's procedures for determining student eligibility. This must include control procedures for administering ability to benefit tests and the above specific eligibility requirements. THE INSTITUTION IS REQUIRED TO DETERMINE WHETHER STUDENTS THAT DO NOT HAVE A HIGH SCHOOL DIPLOMA OR ITS RECOGNIZED EQUIVALENT ARE ABLE TO DEMONSTRATE THAT THEY HAVE THE ABILITY TO BENEFIT FROM THE TRAINING OFFERED. TO SATISFY THE ABILITY TO BENEFIT ELIGIBILITY REQUIREMENT, THE INSTITUTION MUST PROVIDE (AND THE STUDENT MUST PASS) AN INDEPENDENTLY ADMINISTERED EXAMINATION APPROVED BY ED BEFORE RECEIVING TITLE IV ASSISTANCE, OR THE STUDENT MUST BE DETERMINED AS HAVING THE ABILITY TO BENEFIT FROM THE TRAINING OFFERED IN ACCORDANCE WITH A PROCESS AS PRESCRIBED BY THE STATE IN WHICH THE SCHOOL IS LOCATED. b. 1. Obtain the institution's ability to benefit test(s) to determine the test(s) is included on ED's listing of approved tests. (See Chapter 2 of the Student Financial Aid Handbook.) 2. Obtain and inspect the contract or other agreement for the test administration and determine that the test is independently administered. 3. Obtain the test key and publisher's minimum passing score and re-score the test for each ATB student included in the sample below to determine the students met the publishers minimum passing score. c. BASED ON THE INSTITUTION'S WITHDRAWAL BENCHMARK AND THE APPLICABLE SAMPLING APPROACH REQUIRED, AS DISCUSSED ON PAGE I-10, SELECT A RANDOM SAMPLE AND TEST STUDENT FILES TO DETERMINE WHETHER STUDENTS WERE ELIGIBLE FOR SFA. (NOTE: STUDENTS IN THIS SAMPLE MUST BE THE SAME STUDENTS SAMPLED TO TEST DISBURSEMENTS AND REFUNDS.) Obtain and inspect student academic files, financial aid files and other files to determine if the student: 1. Is a regular student (as defined); 2. Is not incarcerated in a Federal or state penal institution, for enrollment beginning on or after September 13, 1994; 3. Is enrolled in an eligible program at least half-time; 4. Is not enrolled in either an elementary or secondary school; 5. Is a U.S. citizen or eligible non-citizen; 6. Has a valid social security number as reported on a valid SAR; 7. Has financial need (as defined); 8. Has total financial assistance that does not exceed financial need; 9. Has on file a signed: a. Statement of Educational Purpose, b. Selective Service Registration, c. Certification Statement on Refunds, and d. Certification Statement on Defaults; 10. Has: a. a high school diploma, or b. general equivalency diploma, or c. passed the age of compulsory high school attendance in the state in which the school is located and has the ability to benefit as determined by an approved independent ATB test; and 11. If applicable: a. has provided all necessary documentation to complete verification; b. is maintaining satisfactory progress (as defined); and c. has all required financial aid transcripts on file. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. 4. DISBURSEMENTS Required Management Assertion [INSTITUTION] COMPLIED WITH THE DISBURSEMENTS COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. Compliance Requirements Records must reflect all financial transactions and identify all disbursements by SFA program. The institution's management of these functions is an indicator of its capability to administer the SFA programs (34 CFR 668.16). Payment Periods: Generally, the institution must make at least two equal SFA disbursements to students each academic year. The second and subsequent disbursements are not earned until the student reaches the next payment period. The institution may make direct disbursements to students or credit students' accounts. If the institution credits student accounts, it must either give students receipts or notify students of the payment. Specific program requirements are: Pell Institutions must specify payment periods and disburse funds at prescribed times. For schools with standard academic terms, the payment period is that term. For schools with nonstandard terms, or, that measures student's progress in terms of clock hours, there must be a minimum of two disbursements; however, the second payment cannot be made until the student completes one-half of the scheduled credit or clock hours for the award year (34 CFR 690.3). The determination of the Pell grant amount may require calculation. See Federal Student Financial Aid Handbook Chapter 4 for detailed information on how to make the calculation. FFELP & FDLP Minimum of two payment periods for all Federal Stafford and any FDLP, regardless of the loan amount or length of the loan payment. No installment may exceed more than one half the loan amount. Federal Perkins & FSEOG Each payment is the full award divided by the number of payment periods during the academic year. If the total Federal Perkins Loan or FSEOG award for an academic year is less than $501, one payment is permitted (34 CFR 674.16, 676.16). Credit Balances in Student Accounts: Students may authorize, in writing, institutions to retain credit balances to assist the student in managing those funds (34 CFR 668.165). Without this authorization, effective July 1, 1995, institutions must pay credit balances to students within 21 days. Effective July 1, 1996, the credit balance must be paid to students within 14 days. Disbursement Criteria: **[The " Disbursement Criteria Chart" on page II-15 is currently unavailable for viewing. Please reference your paper document for additional information.]** FFELP Institutions are responsible for completing the school's portion of the loan application which identifies the loan and/or enrollment period and the campus's OPE identification number. Lenders send or transmit FFELP loan proceeds to the institution. The institution must follow prescribed procedures for processing and applying loan proceeds, which can vary depending on whether the student does or does not enroll, and whether the check is made out to the student only, or co-payable to the borrower and the institution (34 CFR 682 Subpart F). FDLP Institutions are responsible for inputing the school's portion of the loan application which identifies the loan and/or enrollment period and campus OPE identification number and must transmit the data to ED or the Direct Loan Program Servicer. Institutions must have a complete and signed promissory note prior to making disbursements and must accurately input actual loan disbursement dates. FWS FWS payments are made as part of the institution's payroll system or on a contract basis with outside entities. Suggested Procedures *1*a. Review, evaluate, and document procedures for: - Completing loan applications; - Recording all financial transactions; - Disbursing funds by payment periods and within required timeframes and restrictions; - Conducting entrance/exit counseling; and - Identifying credit balances in student accounts. b. FROM THE RANDOM SAMPLE USED TO TEST STUDENT ELIGIBILITY, DETERMINE THAT PAYMENTS PROPERLY CALCULATED AND DISBURSED ACCORDING TO THE CHART ABOVE. (NOTE: THE STUDENTS IN THIS SAMPLE MUST BE THE SAME STUDENTS SAMPLED TO TEST ELIGIBILITY AND REFUNDS.) Obtain and inspect student academic and financial aid files, student accounts, and attendance records and test to determine: 1. The institution did NOT: a. Credit a registered students account more than 3 weeks before the first day of classes; b. Pay a student directly more than 10 days before the first day of classes; c. Release funds or credit a student account for a student on a leave of absence; d. Deliver the first installment of a loan until 30 days after the first day of classes; and e. Make a second and subsequent disbursement until the student completed the prior payment period (for Pell at institutions with nonstandard terms or clock hours). 2. The institution: a. Completed the correct OPE identification number on FFEL applications for the campus the student is attending; b. Has a complete and signed promissory note for FDLP; c. Input actual (not estimated) disbursement dates into Direct Loan software system (for FDLP); d. Performed and documented entrance and exit counseling; e. Paid credit balances within 21 or 14 days, effective July 1, 1995, and July 1, 1996, respectively; and f. If applicable, completed and documented default requirements in an ED approved default management plan or 34 CFR 668 Appendix D. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. 5. REFUNDS Required Management Assertion [INSTITUTION] COMPLIED WITH THE REFUND COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. Compliance Requirements An institution is required to have a fair and equitable refund policy. Refunds must be made of unearned tuition, fees, room, board and other charges to a student who received SFA assistance if a student: does not register for the period of enrollment for which the student has been charged; withdraws, drops out, is expelled, or otherwise fails to complete the period of enrollment.*2* A fair and equitable refund policy provides AT LEAST THE LARGEST REFUND ACCORDING TO: - The requirements of applicable State law; - The specific refund requirements established by the institution's nationally recognized accrediting agency if those standards are approved by ED; or - A pro rata refund calculation for any student attending the institution for the first time, and whose withdrawal date is on or before the 60% point of the enrollment period. When pro rata refund calculation does not apply and no standards for refund calculation exists, institutions are required to use the larger of: - Effective July 1, 1994 through June 30, 1995, the specific refund standards in 34 CFR 668.22 Appendix A; - Effective July 1, 1995, the specific refund standards in 34 CFR 668.22(d), or - The institution's policy. When calculating refunds, an institution may not include any unpaid amount of a "scheduled cash payment" in determining the amount that the institution may retain for institutional charges. Thus, the institution must subtract unpaid "scheduled cash payments" from the amount it retains (34 CFR 668.22(f)(2) and Dear Colleague Letter GEN 95-22 for certain exceptions). Refund Sequence: SFA refunds must be returned in this sequence [34 CFR 668.22]: 1. FFELP in this order: Unsubsidized Federal Stafford Subsidized Federal Stafford Federal PLUS 2. FDLP in this order: Effective July1, 1994 Federal Direct Stafford Federal Direct PLUS Effective July 1, 1995 Unsubsidized Federal Direct Stafford Subsidized Federal Direct Stafford Federal Direct PLUS 3. Federal Perkins Loan 4. Pell 5. FSEOG 6. Other Title IV Assistance 7. Other Assistance 8. To the student Timeframe for Return of Federal Funds: 34 CFR 668.22 specifies the maximum timeframe for the institution to return the SFA portion of a refund to program accounts. For the Pell, FSEOG, and Federal Perkins programs, an institution must return the Federal portion within 30 calendar days of the date the student officially withdraws or the date the school discovers that the student has unofficially withdrawn. If the student received an FFEL or FDLP, an institution must calculate the refund due to a student and return to the lender any portion of the refund allocated to the loan programs within 60 calendar days (34 CFR 682.607, 685.305) of the earliest of these dates: - The date that the student notifies the institution of his or her withdrawal or the date of withdrawal specified by the student, whichever is later; - The date on which the institution makes its determination that the student has withdrawn; - The expiration of the semester, trimester or quarter in which the student withdrew, as determined by the institution; or - The expiration of the enrollment period for which the loan was made. Leave of Absence Withdrawals: If a student fails to return from an approved leave of absence, the student is considered to have withdrawn as of the first day of the leave of absence. An institution has 30 days after the last day of the approved leave of absence to calculate a refund and return funds to the lender. Suggested Procedures *1*a. Review, evaluate, and document procedures for: - Identifying students either were or should have been withdrawn, dropped, terminated or who are on a leave of absence; - Determining which refund method produces the largest refund and assuring pro rata refund calculations are used for all first time students who withdraw on or before 60% of the course was completed; - Assuring refunds are paid using the proper refund sequence; and - Paying refunds within due dates. b. Obtain and become familiar with: 1. Dear Colleague Letter GEN-95-22, 2. State refund requirements, 3. All applicable accrediting agency refund requirements, and 4. Federal Student Financial Aid Handbook Chapter 3. c. FROM THE RANDOM SAMPLE USED TO TEST STUDENT ELIGIBILITY AND DISBURSEMENTS DETERMINE THAT REFUNDS WERE PROPERLY CALCULATED AND DISBURSED WITHIN THE APPLICABLE REFUND DUE DATE. (NOTE: THE OBJECTIVE OF TESTING ENROLLED STUDENTS IS TO ENSURE THEY SHOULD NOT BE TERMINATED AND REFUNDS ARE NOT DUE.) Obtain and inspect student academic and financial aid files, student accounts, attendance records, and cancelled checks or other financial records to conduct the following suggested procedures. 1. Using academic files, financial aid files and attendance records determine the enrollment status (i.e. enrolled, graduated, on a leave of absence, withdrawn, dropped, or terminated) for the random sample was correct. 2. For those students identified as requiring a refund or as being refunded: a. Calculate/recalculate the refund and test that the largest refund calculation (as defined) was paid, assuring pro rata refund calculation was made for all first time students at the institution who withdrew on or before the 60% point of the enrollment period; b. Compare refund payments to the refund sequence above; c. Determine refunds were paid within due dates; and d. Determine refunds to lenders are supported by a cancelled check or other document. 3. a. For both samples, send positive confirmations to students to verify that they: (1) attended the institution; and (2) attended during the dates shown in the institution's records. The purpose of this procedure is to determine if the institution's records are accurate. Note: Document in the working papers reasons for not performing this procedure. b. Analyze confirmations. Report as necessary. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. *2* For refund purposes, SFA assistance excludes FWS but includes Federal PLUS loans received on the student’s behalf. 6. CASH MANAGEMENT Required Management Assertion [INSTITUTION] COMPLIED WITH THE CASH MANAGEMENT COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. FOR AWARD YEAR JULY 1, 1994, THROUGH JUNE 30, 1995, THIS COMPLIANCE REQUIREMENT APPLIES ONLY TO INSTITUTIONS THAT RECEIVED MORE THAN $1,000,000 OF TITLE IV FUNDING DIRECTLY FROM ED. FOR AWARD YEARS STARTING ON OR AFTER JULY 1, 1995, THIS COMPLIANCE REQUIREMENT APPLIES ONLY TO INSTITUTIONS THAT RECEIVED MORE THAN $500,000 OF TITLE IV FUNDING DIRECTLY FROM ED. Compliance Requirements ACH/EFT is the primary mechanism used to disburse SFA funds to most institutions. Cash controls should provide that cash on hand does not exceed the immediate disbursement needs for the SFA programs, three working days (Recipient's Guide Payment Management System, October 1993, 34 CFR 668.163). Federal funds received under any Title IV HEA program, except those funds received for administrative cost allowance, are held in trust for the intended student beneficiaries. Institutions may not use or hypothecate Title IV program funds for any other purpose. (34 CFR 668.18, 668.161) Effective July 1, 1995: - Excess cash tolerances are allowed but must be eliminated within the next seven working days [34 CFR 668.166(b)]; and - Interest earnings, up to $250 per year (excluding Federal Perkins Loan), may be retained by the institution. All earnings in excess of $250 must be returned annually to ED (34 CFR 668.164). Suggested Procedures *1*a. Review, evaluate, and document the institution's procedures for forecasting cash needs, drawing SFA funds from the U.S. Treasury, and disbursing SFA funds within 3 working days. b. Obtain and inspect bank statements for Federal accounts. 1. Determine interest earnings in excess of $250 were returned to ED. 2. Determine the propriety of debit and credit memorandum entries. c. Obtain and inspect draws from the Treasury: 1. Test a random sample of draws to determine SFA funds were disbursed within three working days; 2. For funds not spent within 3 working days, if applicable, determine the institution's excess cash tolerances were not exceeded and were eliminated in the next seven days; and 3. Test SFA disbursements for propriety to ensure SFA funds were not used for investments, or for institutional/personal financing activities. *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. 7. CLOSE OUT (IF APPLICABLE) IF AN INSTITUTION LOSES ITS ELIGIBILITY, CEASES TO PROVIDE EDUCATIONAL INSTRUCTION, OR DISCONTINUES PARTICIPATION IN THE TITLE IV PROGRAM DURING THE AWARD YEAR, THE FOLLOWING ADDITIONAL COMPLIANCE REQUIREMENTS MUST BE TESTED. FURTHER, OTHER COMPLIANCE REQUIREMENTS IN THIS AUDIT GUIDE MUST BE TESTED. Required Management Assertion [INSTITUTION] COMPLIED WITH CLOSE OUT COMPLIANCE REQUIREMENTS LISTED IN SECTION II OF THE ED SFA GUIDE. Compliance Requirements When an institution loses its eligibility, ceases to provide educational instruction, or otherwise discontinues participation in the Title IV programs, the institution must (34 CFR 668.26): - Immediately notify ED of that fact; - Inform ED of the arrangements it has made for the proper retention and storage, for a minimum of five years, of all records concerning the administration of the Title IV programs; and - If applicable, inform ED of how it will provide for the collection of any outstanding Title IV loans. Suggested Procedures a. Review 34 CFR 668.26 for background purposes. b. Obtain and inspect the institution's copy of its notification to ED of its loss of eligibility, ceased operations, or discontinued Title IV participation. c. Obtain and inspect the existence of a contract or other arrangement for: 1. Storage of institution records for the next five years, report the storage location of SFA records on the AIS (Example C); and 2. If applicable, collection of any outstanding Title IV loans or assignment of all outstanding Title IV loans to ED (including loans held by servicers or loan collection agencies). d. 1. Contact the following to determine the existence of any sureties and each status: U.S. Department of Education Financial Analysis Branch 600 Independence Ave., S.W. Washington, D.C. 20202-5323 (202) 401-6485 FAX (202) 205-0782 2. Report the existence of any unexercised sureties on the AIS (Example C). e. Obtain and inspect all bank statements to identify: 1. Any large or unusual transactions for propriety and explanation; and 2. Open bank accounts to be reported on the AIS (Example C). *1* Review, evaluate and document means: the IPA must document his/her understanding of the relevant portions of the internal control structure and the assessed level of control risk. |