| AwardYear: 1995-1996 EnterChapterNo: 3 EnterChapterTitle: Institutional Eligibility and Administrative Requirements SectionNumber: 7 SectionTitle: Program Reviews and Audits PageNumbers: 137-146 The Department uses several methods to ensure that schools, lenders, and guaranty agencies are using correct procedures to award, disburse, and account for the use of Federal funds. In this section we will discuss audits and program reviews that are conducted at schools that participate in the SFA programs, as well as other quality control measures. If the program review or audit identifies SFA funds that have been improperly awarded, the school must return those funds to the program accounts. However, program reviews and audits are not conducted so much to recover funds as to identify procedural problems at the school and recommend solutions. Several other ways for a school to obtain technical assistance are discussed at the end of the section. If a program review or audit finds evidence of fraud or other serious program abuse at a school, the school may be subject to corrective action, such as fines, emergency action, or suspension, limitation, or termination (see Section Ten of this Chapter). AUDITS [[Final Rule 11-29-94]] The audit requirements under the Higher Education Amendments of 1992 were implemented by final regulations published on April 29, 1994 and November 29, 1994. All participating SFA schools, including foreign schools, and third-party servicers must have an annual compliance audit performed independently, covering every aspect of the school's or servicer's administration of the SFA programs. (Annual audits are also required for secondary markets, for all transactions involving the servicing or collecting of loans.) See Section Two of this Chapter for more on third-party servicers, including a definition of the term. Schools and servicers can meet the audit requirements by having an audit performed under the guidelines of the Department's Audit Guide: Audits of Student Financial Assistance Programs. Audits performed under the guidelines of the Single Audit Act*2* known as A-128 audits and A-133 audits) will also meet this requirement. [[Audit options depend on control]] The type of audit a school or servicer may have depends on its method of control: public, for profit, or nonprofit, as illustrated by the chart below. All for-profit schools (and servicers) must comply with the audit requirement by having an SFA Compliance Audit under the criteria of the Department's Audit Guide. All public schools may comply with OMB Circular 128, which allows an SFA Compliance Audit under the criteria of the Department's Audit Guide or an A-133 audit under limited circumstances. All nonprofit institutions must follow OMB circular A-133, which allows for an Audit Guide audit under some circumstances. [[The chart "Audit Options" on page 3-138 is currently unavailable for viewing. Please reference your paper document for additional information.]] Generally, a school's first audit performed under these requirements must cover the entire period of time since the school began to participate in the SFA programs. However, a foreign school's first audit must cover only the last two complete award years of SFA participation, unless the Department specifies otherwise. Each subsequent audit must cover the period since the preceding Department accepted audit. [[Exceptions for servicers]] The SERVICERS first audit must cover the servicer's activities for the award year, ending on or after July 1, 1994, in which the servicer began to administer any aspect of a school's participation in the SFA programs. Each subsequent audit must cover the entire period of time since the preceding audit. If a servicer contracts with only one SFA school, and that school's own audit sufficiently covers all the functions performed by the servicer, a separate audit is not required. Similarly, if a servicer contracts with several SFA schools, a single audit can be performed that covers all its administrative services for each school. A school may never use a third-party servicer's audit in place of its own required audit, because the school is ultimately liable for its own violations as well as those incurred by its third-party servicers. The audit must be performed by an independent auditor in accordance with general audit standards and the standards of the U.S. General Accounting Office (GAO). In conducting an audit, a school or servicer and its auditor should use the Department of Education's latest Audit Guide for Student Financial Assistance Programs, the accounting and recordkeeping manual for the SFA programs (known as The Blue Book), and the ED Payment System Users Manual. [[The "Blue Book" description on page 3-139 is currently unavailable for viewing. Please reference your paper document for additional information.]] [[Independent audits]] The auditor or auditing firm the school or servicer uses for its required nonFederal audit may be the same one that usually audits the school's or servicer's fiscal transactions. To produce unbiased conclusions, the auditor must be independent of those authorizing the expenditure of SFA program funds. The criteria for independence are given in Chapter IV Section B of the GAO Standards for Audit of Governmental Organizations, Programs, Activities, and Functions. The most important sections of the Standards are published as Appendices B and C of the December 31, 1980 Student Assistance General Provisions regulations. An audit conducted by a State auditor will also satisfy the nonFederal audit requirement. [[Audits by Inspector General]] The Office of Inspector General (OIG) also conducts audits, usually in cases where there may be concern over the school's administration of the SFA programs. A Federal audit such as this does not satisfy the requirement that a school have an annual nonFederal audit. Regardless of who is performing the audit, the audit itself will examine whether the school or servicer is properly conducting its financial operations and is complying with the laws and regulations that are applicable to the SFA programs. [[Scope of the audit]] The school or servicer must make its program and fiscal records, as well as individual student records, available to the auditor. (Required recordkeeping is discussed in Section Eight of this Chapter.) Both the financial aid and business offices should be aware of the dates the auditors will be at the school, and make sure that someone is on hand to provide requested documents and answer questions during that period. [[Exit interview]] At the end of the on-site review, the auditor will hold an exit interview. At a school, this exit interview is usually conducted with the personnel from the school's financial aid and other relevant offices. The exit interview is not only an opportunity for the auditor to suggest improvements in procedures, but also gives the school or servicer a chance to discuss the draft report and review any discrepancies cited in the report. Because of the complexity of financial aid programs, it is not unusual for misunderstandings to arise concerning program requirements and school or servicer procedures. The exit interview is a good time to resolve any disagreements before the final report is prepared. [[Audit report]] The final report will be prepared by the auditor and submitted to the school or servicer. (For both Audit Guide and A-128 audits, the auditor must report all audit findings. For A-133 audits, the auditor is required to report only audit findings of noncompliance.) The school or servicer must then submit the audit report to the Department's Regional Inspector General for Audit (RIGA). In addition, the school or servicer must address the auditor's findings in a Correction Action Plan (CAP), submitted to the RIGA separately or included with the audit report. [[Final Rule 11-29-94]] [[Audit submission deadlines]] The Department is collecting compliance audits annually, instead of biennially, beginning with the 1994-95 award year, as required by law. Beginning with the 1995-96 award year, a school's or servicer's annual compliance audit must be based upon the AWARD YEAR and submitted to the Department within SIX MONTHS after the end of the school's or servicer's FISCAL YEAR. Therefore, the audit would be due six months after the fiscal year that ends on or after the most recently completed award year for which the audit is performed. [[The "Audit Deadline Examples Chart" on page 3-140 is currently unavailable for viewing. Please reference your paper document for additional information.]] [[A-133 and]] [[A-128 audits]] This requirement can also be met with an audit conducted in accordance with OMB circular A-133 or A-128, if applicable. A-133 and A-128 audits would be due in accordance with the submission deadlines applicable to these audits, instead of six months after the end of the fiscal year. The RIGA will review the audit report only for format, completeness, and to ensure that it complies with the government's auditing standards. After its review, the RIGA forwards the audit report and the CAP to the Audit Resolution Branch (ARB) in Student Financial Assistance Programs, Office of Postsecondary Education; at this point, the RIGA also notifies the school or servicer that it has 35 days to add any supplemental information to its CAP. Based on the audit findings and the school's or servicer's written explanation, the ARB will determine if any funds were spent improperly. The school or servicer must repay any improperly spent funds within 45 days, unless the school or servicer has properly appealed the decision. [[Access to records]] Once the audit is complete, the school or servicer must give the Department and the Office of Inspector General (OIG) access to any records or other documents necessary to review the audit. In addition, the school's or servicer's contract with the auditor must specify that the auditor will also give the Department and OIG access to the records and documents related to the audit, inclusive of work papers. [[Access to audit results]] If requested, or as warranted by the Department, the school or servicer must provide the results of the audit to any relevant guaranty agency, FFEL lender, State agency, accrediting agency, State postsecondary review entity (SPRE), or to the Secretary for Veterans Affairs. [[Full cooperation is required for all examination actions]] Throughout the audit process, and for other examinations such as program reviews and State reviews, the school or servicer is required to cooperate fully with its independent auditor, the Department and its Inspector General, the Comptroller General of the U.S., the appropriate guaranty agency and accrediting agency, and the appropriate State Postsecondary Review Entity (SPRE). Cooperation includes timely and reasonable access to records (including computer records) for examination and copying, and to personnel for the purpose of obtaining relevant information. Access -- The right to copy records (including computer records), to examine computer programs and data, and to interview employees without the presence of management or management's tape recorders PROGRAM REVIEWS In addition to reviewing audits, the Department conducts its own program reviews to identify possible problems in schools' SFA administration. Under the HEA of 1965, as amended, the Department systematically performs regular program reviews of SFA schools. In selecting schools for review, the Department gives priority to schools that appear to be experiencing fiscal or administrative problems. Some of the criteria include: an FFEL cohort default rate over 25%; a rate which places the school within the top 25% of all FFEL default rates; and a default dollar volume that is within the top 25% of all FFEL schools. Other review priorities include significant fluctuation in Federal Stafford and Federal Pell volume, problems reported by an accrediting or State agency, and a high dropout rate. A program review covers many of the same areas as an audit, including fiscal operations and accounting procedures, as well as the school's compliance with the specific program requirements for student eligibility and awards. However, program reviews tend to focus more on regulatory requirements that are specific to the SFA programs. In particular, the program review team will usually examine student records and admissions records, fund requests and transfers, records pertaining to due diligence and the collection of Federal Perkins Loans, time sheets and pay rates for the FWS Program, and documents related to the reporting process for the Federal Pell Grant and campus-based programs. The review team will also review the adequacy of the school's drug prevention program. [[The charts "Most Frequent Audit and Program Review Liabilities" and "Most Frequent Non-Monetary Findings" on page 3-142 are currently unavailable for viewing. Please reference your paper document for additional information.]] [[Written report]] The program review team prepares a written report that will be sent to the school within 30 to 60 days of the review. The school may respond to this report if it wishes to offer additional information to support its position, or if it disagrees with any of the report's conclusions. When the Department has fully considered the school's response and all issues have been resolved, the Department official will send a copy of the final program review determination to the school. UNANNOUNCED PROGRAM REVIEWS It may occasionally be necessary for Department officials to perform an unannounced program review. The General Provisions regulations stipulate that Department officials provide a school with a written request for a program review, but do not preclude the Department from providing such a request at the time the reviewers arrive at the school. The decision to conduct an unannounced program review rests with the regional Institutional Review Branch (IRB) Chief, but IRB headquarters will be notified in advance. [[Criteria for unannounced reviews]] The criteria for selecting a school for an unannounced program review include, but are not limited to -- - negative publicity or complaints from local law enforcement agencies, - complaints or incriminating information from students, parents, or current/former school employees, e.g. to the OIG, - negative reports from State agencies, accrediting agencies, and - other reasonable suspicion of fraud or abuse at the school. [[Emergency action]] In an unannounced program review, the Department reviewers will present a written request to school officials before beginning review. The school is expected to have its records organized and readily available, without objection to providing access to those records. However, because certain school officials may not be immediately available during the review, the school may be afforded additional time to submit information regarding the review findings. THE DEPARTMENT HAS REGULATORY AUTHORITY TO TAKE AN EMERGENCY ACTION IF A SCHOOL DENIES ACCESS TO THE REVIEWERS PERFORMING AN UNANNOUNCED PROGRAM REVIEW. SCHOOL OFFICIALS WILL BE INFORMED IF AN EMERGENCY ACTION IS TO BE TAKEN. Emergency Action -- upon the recommendation of the Institutional Monitoring Division, the Department may withhold SFA program funds from the school or its students, and/or withdraw the school's authority to obligate or disburse SFA funds. STATE POSTSECONDARY REVIEWS Schools may also be subject to reviews by appointed State entities, under the new State Postsecondary Review Program (as authorized by the Higher Education Amendments of 1992 and implemented in final regulations published April 29, 1994). This cooperative review program between State entities and the Federal government is discussed in detail in Section Ten of this Chapter. GUARANTY AGENCY REVIEWS [[Focus of guaranty agency review]] The FFEL program regulations also require guaranty agencies to conduct program reviews at postsecondary schools. A guaranty agency must conduct biennial (once every two years) on-site reviews at the 10 schools with the highest loan volume through that agency, as well at any school whose loan volume is 2% or more of the guaranty agency's total loan volume. A guaranty agency is also required to conduct biennial program reviews of schools in its State that have a default rate of over 40%, and any school with a default rate over 20% if the Department notifies the agency that the school does not have a default reduction plan. A program review conducted by a guaranty agency is similar to a Department program review, consisting of an entrance interview, review of student records, an exit interview, and a written report. However, the guaranty agency's review will focus on how the school meets FFEL-specific requirements, such as -- - certification of the loan application, - maintenance of records supporting the student's loan eligibility, - processing procedures and payment of loan monies, and - prompt lender notification when the student changes enrollment status, such as complete withdrawal. Two copies of the guaranty agency's report are forwarded to the Department, including the school's payment if liabilities were assessed. APPEALING AUDIT AND PROGRAM REVIEW DETERMINATIONS [[Only final determinations may be appealed]] The law allows for appeals of final audit or program review determinations. Note that only a final determination may be appealed. The letter conveying a final audit determination is clearly identified as a "FINAL LETTER OF DETERMINATION" and explains the appeals procedures. For a program review, the final determination letter is marked "FINAL PROGRAM REVIEW DETERMINATION LETTER." [[Review by impartial hearing official]] If a school or servicer wants to appeal an audit or program review determination, it must appeal, in writing, to the Departmental official identified in the determination within 45 days after it receives the determination. If the school or servicer makes such a request, the determination will be reviewed by an impartial hearing official appointed by the Department. In most cases, an oral hearing will not be required. The school or servicer and the Department must submit briefs with any accompanying materials to the official, and provide the other party with a copy of its submission at the same time. If the final decision is appealed by either party, the Secretary will review it. [[Repayment of liability]] If the hearing official (or the Secretary) finds that the school or servicer improperly expended funds or otherwise failed to comply with applicable program rules and requirements, the Department will determine the liability owed, if any. The school or servicer must repay the funds within 45 days of the Department's notification of the liability, unless the Department grants an extension. At its option, the Department may elect to use an administrative offset to collect the funds owed. QUALITY ASSURANCE PROGRAM Under the Quality Assurance Program (QAP), schools design and establish quality control/assurance programs to minimize error in the administration and delivery of SFA programs. The emphasis of this program is on prevention or up-front correction, rather than after-the-fact inspection. It provides schools with the tools and incentives to accurately and effectively deliver student aid and to improve their service to students. It is based on the principles of Total Quality Management, with an annual cycle of assessment and problem identification with measurement, solution design and implementation, and monitoring of results for continuous improvement. QAP schools are exempt from certain verification requirements that duplicate quality control measures, but appropriate reporting requirements and Quality Assurance Site Reviews are substituted to ensure accountability and program integrity. Schools that are interested in QAP participation should contact the Performance and Accountability Improvement Staff at the following address or phone number: U.S. Department of Education/OPE/SFAP/IPOS Performance and Accountability Improvement Staff 600 Independence Ave., S.W., ROB-3, Room 3023 Washington, D.C. 20202-5232 (202)260-4788 [[Consultants and peer review]] A school can take other steps to improve its operating procedures, such as contracting with an independent consultant to review its financial aid office to ensure compliance with Federal and State requirements, and to recommend improvements. Or, it might undertake a "peer review" by arranging for a financial aid administrator at another school to visit and review office procedures. *1* Under the Single Audit Act (Chapter 75 of Title 31, U.S.C.), certain types of schools that receive funds from more than one Federal program may have a combined audit of all the Federal programs at that school. The Single Audit Act has been implemented by Federal agencies using two circulars prepared by the Office of Management and Budget (OMB). OMB Circular-A-128 applies to public schools that are State entities; OMB Circular-A-133 applies to nonprofit postsecondary schools. For this reason, audit under this act may be referred to as A-128 or A-133 audits. (OMB Circular A-133 supersedes OMB Circular A-110, Attachment F.) |