Federal Student Aid - IFAP
   
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.