Federal Student Aid - IFAP
   
IFAP
SFA Information for Financial Aid Professionals
U.S. Department of Education
PublicationDate: 7/1/97
AuditGuideType: Audit Guide for Schools
SectionNumber: II
SectionTitle: Institution's Required Management Assertions, Compliance Requirements, and Suggested Procedures
PageNumbers: II-1 to II-30

audii9a.pdf  PDF  audii16.pdf  PDF
SECTION II

INSTITUTION’S REQUIRED MANAGEMENT ASSERTIONS,
COMPLIANCE REQUIREMENTS, AND SUGGESTED PROCEDURES


INTRODUCTION


This section:

1. Sets forth the minimum standards, which are the subject of management's written compliance assertions;

2. Briefly 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, 1996 and final regulations issued for 34 CFR Parts 668, 673, 674, 675, 676 and 690 on November 27, 1996; Parts 600 and 668 on November 29, 1996; and Parts 668, 674, 675, 676, 682, 685, and 690 on November 29, 1996.)

ED "Dear Colleague" letters

The Direct Loan School Guide for the year(s) being audited.

The institution's:

Catalog
Federal Cash Transaction Report PMS 272
Monthly Cash Summary and Data Matching 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.
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 (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;

Undergraduate programs offered in credit hours must meet certain requirements for the amount of instruction provided in each credit hour, unless exempted by regulation. The requirements are spelled out in 34 CFR 668.8 (k) and (l) and 668.9. Dear Colleague Letter (DCL) GEN-95-38 dated August 1995 notified institutions of the actions they must have taken to assure they were in compliance with the requirements. Note: DCL GEN-95-38 can be obtained by calling 1-800-4FEDAID or accessing the SFA electronic Bulletin Board System.

Accreditation letter from its accrediting agency covering the fiscal year (34 CFR 600.5, 600.11);

Been licensed throughout the fiscal 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 that ended during the institution’s fiscal 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.

Published and distributed to required parties, an annual campus crime report that contains all the required information at 34 CFR 668.47.

Prepared and disseminated to all enrolled students or prospective students by mailing or appropriate publications, annual information regarding completion or graduation rates and transfer-out rates of certificate or degree-seeking full-time undergraduate students. A similar annual published report on student athletes is also required(34 CFR 668.41, 668.46 and 668.49).

Prepared annually, for institutions offering "athletically related student aid" a compilation of revenues and expenses of intercollegiate athletic activities by specific sports which must be independently audited at least every three years and must be made available to the public (34 CFR 668.14).

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 *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. 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 fiscal 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.

5. If the institution offers undergraduate programs in credit hours, determine if the institution followed 34 CFR 668.8 (k) and (l) and 668.9 and DCL GEN-95-38 guidance, as applicable. Obtain, review and verify that any required clock to credit hour conversion(s) conform to requirements.

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 fiscal year; and

2. Any subsequent correspondence covering the fiscal year.

d. Obtain and inspect licenses covering the fiscal 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 nonolo 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 award year 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.

i. Obtain and inspect the annual security report. Verify the report contains all information required by 34 CFR 668.47 and was distributed as required.

j. Verify that annual information regarding completion or graduation rates and transfer-out rates of certificate or degree-seeking full-time undergraduate students was disseminated to all enrolled students or prospective students. Verify that the information on student athletes was published in an annual report. On a test basis, trace and verify the information.

k. If applicable, obtain and review the annual report regarding intercollegiate athletics. Verify the report revenues and expenses include all applicable sport activities and that an audit report is issued every three years.

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 1995). Note: The EDCAPS system will be replacing the PMS 272 sometime in late calendar 1997 or early 1998. There will be an EDCAPS Recipient’s Guide; the IPA should review that Guide and adjust the Suggested Procedures below accordingly.

FDLP monthly reconciliation reports [34 CFR 685.308]:

Loan Detail Records,
Cash Detail Records, and
Summary Records that includes totals of each type of cash and loan detail record.

SSCRs [34 CFR 682.610(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 that were never reported to ED. Institutions may receive credit or reimbursement if those awards are disclosed in the original timely filed audit report [34 CFR 690.83 and 668.23].

Suggested Procedures

*a. Review, evaluate, and document procedures:

Reporting expenditures on the Federal Cash Transaction Report (PMS 272)
Making monthly FDLP reconciliations
Completing and submitting 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 reconciliation reports and the FDLP guidance on this subject for the audit period.

1. On a test basis determine the institution submitted the required monthly reconciliations.

2. For unreconciled 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 Loan Origination Center(LOC).

3. As applicable and on a test basis, determine that the data in the institution’s system is reconciled to the FDLP software system.

4. 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 FFELP and FDLP 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. 1. 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.

2. Documentation supporting the Pell adjustment request must be included in the transmittal of the audit report package. Follow applicable guidance in Dear Colleague Letter GEN 94-14 or its successor.


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.

FDLP is a new program that is changing annually. You should obtain and review the institution’s copy of the Direct Loan School Guide for the year(s) being audited. Institutions participate under one of three School Origination Options. Key concepts contained in the 1996-97 School Guide for each option follow.

[[This file contains the chart on page II-9a in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software.]]

The FDLP is an electronic program except for the original promissory note which is mailed to the LOC. Electronic records are created, exported (batched), and transmitted to the LOC and acknowledged (imported from) the LOC, a cycle approach. A cycle is not complete until the last activity in it is finished, i.e., an action has been accepted by the LOC and the school’s system reflects the acceptance. FDLP has five types of cycles: Loan Origination Records(one for each loan), Promissory Note Manifests, Disbursement Records, Change Records and Reconcilement Records. For a loan to be
"booked" the institution must have electronically transmitted to the LOC and the LOC must have accepted these records:

Loan origination record,

Promissory Note Manifest (matched with the paper promissory note sent by the school/student), and

First disbursement of loan proceeds.

Unique to FDLP : Direct Loan funds do not appear on the PMS 272;

There is no Direct Loan application, the FAFSA serves as the application.

The borrower’s original accepted promissory note will not be at the institution. However, some institutions have opted to keep a copy of the note but the institution is not required to keep a copy.

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 on Overpayments and Defaults (34 CFR 668.7 and 668.32);

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

*
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 (34 CFR 668 Subpart J, Sections 141 through 156).

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. If the test is not given at an assessment center, determine if the test administrator forwards test results within two days to the test publisher for scoring.

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 evidence of a signed FAFSA, Renewal Application, or if filed electronically, evidence of a signed "echo document".

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.

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:

Effective July 1, 1997 there is a uniform definition of payment period for the Title IV programs (except for FWS) as follows:

For an eligible program that has academic terms, measures progress in credit hours, and is offered in semesters, trimesters, quarters or other academic terms , the payment period is the semester, trimester, quarter, or other academic term.

For an eligible program that measures progress is credit hours and does not have academic terms or measures progress in clock hours: (1) For a student enrolled in an eligible program that is one academic year or less in length --(I) the first payment period is the period of time in which the student completes the first half of the program as measured in credit or clock hours; and (ii) the second payment period is the period of time in which the student completes the second half of the program as measured in credit or clock hours. (2) For a student enrolled in an eligible program that is more than one academic year in length --(I) For the first academic year and any subsequent full academic year as measured in credit or clock hours -- (A) the first payment period is the period of time in which the student completes the first half of the academic year as measured in credit or clock hours; and (B) the second payment period is the period of time in which the student completes the second half of that academic year; (ii) for any remaining portion of an eligible program that is more than one-half and academic year but less than a complete academic year -- (A) the first payment period is the period of time in which a student completes the first half of the remaining portion of the eligible program as measured in credit or clock hours; and (B) the second payment period is the period of time in which the student completes the remained of the eligible program; and (iii) for any remaining portion of an eligible program that is not more than half an academic year as measure in credit or clock hours, the payment period is the remainder of the eligible program (34 CFR 668.4).
There are additional requirements on payment periods. The IPA should familiarize him or herself with the entire payment period definition.

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 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:

[[This file contains the chart of Disbursement Criteria in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat software.]]


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). Loan funds provided by electronic fund transfer or master check may not be requested earlier than: 27 days after the first day of classes of the first payment period for a first-year, first-time borrower; or 13 days before the first day of classes for any subsequent payment period for a first-year, first-time or for any payment period for all other FFEL borrowers. (34 CFR sections 682.603, 682.604 and 668.167).
FDLP

The institution must determine that the student maintained continuous eligibility from the beginning of the loan period described in the promissory note. Option 1 and Option 2 institutions may not disburse loan proceeds until they have obtained a legally enforceable promissory note. Option 1 and standard origination institutions may only disburse funds for students listed on the Actual Disbursement Roster. All institutions must submit disbursement records to the loan origination center no later than 30 days following the date of disbursement. Option 1 and Option 2 institutions must also submit loan origination records and promissory notes within 30 days of the initial loan disbursement (34 CFR section 685.303 and 301).

FWS

FWS payments are made as part of the institution's payroll system or on a contract basis with outside entities.

Suggested Procedures

*a. Review, evaluate, and document procedures for:

Completing loan applications;
Recording all financial transactions;
Requesting and 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 10 days 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.

f. Request, for FFELP loan proceeds transmitted by EFT or master check, the funds earlier than, as appropriate, the 27 and 13 day restrictions.

2. The institution:

a. Completed the correct OPE identification number on FFEL applications for the campus the student is attending;

b. Has obtained a legally enforceable FDLP promissory note;

c. Disbursed (for FDLP Schools) loan proceeds only for students listed on the Actual Disbursement Roster (Option 1 and standard origination schools); input actual (not estimated) disbursement dates in the FDLP software system; submitted initial disbursement records, loan origination records and promissory notes to the LOC within 30 days of the initial disbursement; and all second and subsequent loan disbursement records to the LOC within 30 days of disbursement;

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.

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. For refund purposes, SFA assistance excludes FWS but includes Federal PLUS loans received on the student's behalf. 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 July 1, 1994Effective July 1, 1995
Federal Direct Stafford Unsubsidized Federal Direct Stafford
Federal Direct PLUSSubsidized 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

*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.


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.

FOR FISCAL YEARS STARTING ON OR AFTER JULY 1, 1996, THESE COMPLIANCE REQUIREMENTS MUST BE TESTED AT INSTITUTIONS THAT RECEIVED MORE THAN $300,000 OF TITLE IV FUNDING THROUGH ONE OPE ID NUMBER DURING THE FISCAL YEAR BEING AUDITED.

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

*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.


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
Performance Improvement and Procedures Division, IPOS
Attn: Financial Analysis
600 Independence Avenue, SW
ROB-3, Room 3682
Washington, DC 20202-5265

Tel. (202) 260-5742
Fax: (202) 708-6730

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).



8. PERKINS COLLECTIONS AND DUE DILIGENCE

Required Management Assertion

[Institution] complied with the Perkins Collections and Due Diligence compliance requirements listed in section II of the ED SFA Guide.

Compliance Requirements


SFA compliance requirements concerning Perkins Collections and Due Diligence are contained in 34 CFR 674. The institution must exercise due care and diligence in the collection of loans. The regulations covering the deferment of repayments of Perkins Loans are shown in 34 CFR 674.34 and .35 In addition, the deferment procedures are contained in 34 CFR 674.38. Due diligence requirements are contained in 34 CFR 674 Subpart C.

Deferment of Payments:

Payments on Federal Perkins Loans may be deferred during particular periods based on the date of the loan. The borrower need not repay principal, and interest does not accrue, except that interest does accrue during a hardship deferment for loans made before July 1, 1993. Deferments may only be granted when requested in writing and submitted to the school by its due date and with required documentation. A borrower is entitled to a 6-month grace period (post-deferment grace period) after each deferment and neither the deferment nor the grace period is included in determining the 10-year repayment period. Below is information on three types of deferments, you should review Chapter Six of The Federal Student Financial Aid Handbook applicable to the audit period for additional information concerning deferments.

In-school deferment;

Deferments may be given to borrowers who are regular students enrolled at least half-time in an eligible institution of higher education or a comparable institution outside the U.S. approved by ED for this purpose. It is not a requirement that the school participate in the Federal Perkins Loan Program in order for the borrower to qualify for an in-school deferment. For loans made on or after July, 1993, borrowers who are in approved graduate fellowship programs, rehabilitation training programs for disabled individuals, or are engaged in graduate or post-graduate fellowship-supported study also qualify for an in-school deferment. However, deferments may not be granted to a borrower while serving in a medical internship or residency program, except for a residency program in dentistry.

Economic Hardship Deferment;
For Federal Perkins loans made on or after July 1, 1993, a deferment of up to three years may be granted for economic hardship. To qualify, the borrower must be seeking and unable to find full-time employment or be suffering an economic hardship. To qualify as suffering economic hardship, the borrower must provide documentation satisfactory to the institution showing economic hardship as described in 34 CFR 674.34.

Three Year Deferments;

A borrower of a Federal Perkins Loan made before July 1, 1993, may defer repayment for up to three years and interest will not accrue while the borrower is:

a member of the U.S.Army, Navy, Air Force, Marines, or coast guard;
a member of the National Guard or the reserves serving a period of full-time active duty in the Armed Forces;
an officer in the Commissioned Corps of the U.S. Public health Service;
On full-time active duty as a member of the National Oceanic and Atmospheric Administration Corps;
a Peace Corps volunteer;
a volunteer under Title I-Part A of the Domestic Service Act of 1973 (ACTION);
A full-time volunteer in service for a tax-exempt organization that ED has determined is comparable to Peace Corps or ACTION service; or
Temporarily totally disabled or unable to work because he or she must care for a spouse or other dependent who is so disabled.
Cancellation:
A borrower may have all are part of his or her loan (including interest) canceled for engaging in public service such as teaching or service in programs such as Head Start, Peace Corps, and ACTION, or service in the military. The borrower must apply for cancellation of the loan by obtaining the appropriate cancellation form from the business or student loan office of the school that made the loan or its servicer. The form and any required documentation must be submitted on a timely bases. The conditions which apply and the loan amounts which may be canceled vary depending on the date of the loan and the type for service performed to qualify for the cancellation. The auditor should review Chapter Six of The Student Financial Aid Handbook applicable to the audit period to determine the specific criteria which apply.
Billing and Collections:
Billing refers to that series of actions the school routinely performs to notify borrowers of payments due, remind them of overdue payments, and demand payment of overdue amounts. Generally, repayments begin after a grace period of either six or nine months. An “initial grace period” of nine months immediately follows a period of enrollment and immediately precedes the date repayment is required to begin for the first time. A borrower who returns to school on at least a half-time basis prior to completion of the initial grace period is entitled to a full initial grace period. The school must contact the borrower during both initial and post-deferment grace periods to remind him or her when repayment will begin. If a payment is overdue and the school has not received a request for deferment, postponement, or cancellation, the school must send the borrower an overdue notice. A first notice must be sent within 15 days after the due date, a second notice within 30 days after the first notice and a final demand sent within 15 days after the second notice. If the borrower does not respond to the final demand letter within 30 days, the school must try to make contact by telephone before beginning collection procedures.
Collection procedures are the more intensive efforts a school must make when borrowers have not responded satisfactorily to billing procedures and are considered seriously in default. The first step a school must take in the collections process is to report a defaulted loan account to a national credit bureau organization with which ED has an agreement. The second step the school must take is to use its own personnel to collect or hire a collection firm. If efforts cannot convert the account to regular repayment status within 12 months (or the borrower does not qualify for deferment, postponement, or cancellation), the school must either litigate or make a second effort to collect. The second effort to collect requires that:
If the school first attempted to collect by using its own personnel, it must refer the account to a collection firm, unless state law prohibits it; or
If the school first used a collection firm, it must use a different firm or it own personnel, or submit the account to ED for assignment.
If a collection firm (retained by a school as part of its second effort to collect) cannot place an account into regular repayment status by the end of 12 months (or if the borrower does not qualify for deferment, postponement, or cancellation), the firm must return the account to the school.The school must continue to make annual attempts to collect the account until:
the loan is recovered through litigation;

the account is assigned to ED; or

the loan is written off.

The school must assess all reasonable collection costs against the borrower, without regard to the provisions of state law. The school determines what collection costs are “reasonable,” as long as they are based on actual costs the school incurs for the particular borrower, or on average costs incurred in collecting loans in similar stages of default. The school must be able to document the basis for the costs assessed. Schools may waive all or a portion of collection costs or make other compromises or consolidations based on a number of factors. The auditor should review Chapter Six of The Student Financial Aid Handbook applicable to the audit period to determine the conditions which apply.

The school may use a contractor for billing or collection, but the school is still responsible for complying with Subpart C regulations about those activities. For example, the school is still responsible for deciding whether to sue a borrower in default. A school may not use a billing service or a collection firm that owns or controls the other, or are owned or controlled by the same corporation, partnership, association, or individual.

Suggested Procedures

*
a. Review, evaluate, and document the institution's methodologies for determining compliance with Perkins collections and due diligence requirements.

b. Select a sample of Federal Perkins Loans which are representative of the loans in the schools portfolio and test their compliance with applicable SFA requirements. For example, for loans that have entered a grace period or repayment, determine that the proper number of contacts were made and that billing notices were appropriately given. Be aware at the grace periods and billing periods are measured in days not months or portions thereof. Verify that proper documentation exist for any deferments or cancellations.