March 26, 2007

> Control Number
>
> [ED-OIG/A09G0023]{.underline}

Dr. Noelia Vela, President

Cerritos Community College

11110 Alondra Boulevard

Norwalk, California 90650

Dear Dr. Vela:

This **Final Audit Report**, entitled *Cerritos Community College's
Verification of Applicant Information Submitted on the Free Application
for Federal Student Aid*, presents the results of our audit. The purpose
of the audit was to determine if Cerritos Community College
completed verification of applicant data and accurately reported
verification results to the U.S. Department of Education (Department)
for the period July 1, 2005, through June 30, 2006 (award year
2005-2006).

BACKGROUND

Students apply for Federal student aid by completing a Free Application
for Federal Student Aid (FAFSA), which is processed by the Central
Processing System (CPS). The CPS uses the application information and
the statutory needs analysis formula to calculate each applicant's
expected family contribution (EFC). If the EFC is less than the
student's cost of attendance, a student has financial need and may be
eligible to receive financial aid under the Higher Education Act of
1965, as amended (HEA), Title IV programs.

The CPS selects applications for verification, which is the process used
to ensure that students and parents report accurate financial and
demographic data on the FAFSA. Verification is required under Subpart E
of 34 C.F.R. Part 668. For enrolled students who were selected by the
CPS for verification, the schools verify the accuracy of five items of
data: adjusted gross income, U.S. income tax paid, household size,
number of students in the household who are enrolled in college, and
certain untaxed income benefits. Students must provide schools with
income tax returns and other documents to support the reported data. The
school has completed verification when it has either determined that the
application data are correct or when the corrected data have been
submitted to the CPS. The school must document verification and maintain
a CPS document in its files showing the student's final EFC.

When a school disburses a Federal Pell Grant for a student, the school
is required to report the verification status of the student's
application to the Department's Common Origination and Disbursement
(COD) system.[^1] As described in the Federal Student Aid Handbook
2005-2006, "Application and Verification Guide," the verification status
codes are---

-   **V** -- School completed verification of the student's application.
    This code is used for both applications selected by the CPS for
    verification and those the school chose to verify based on its own
    criteria.

-   **S** -- The CPS selected the student's application for
    verification, but the school did not verify the application
    information because 1) the school participates in the HEA, Title IV,
    Quality Assurance (QA) Program[^2] and the student's application did
    not meet the school's verification criteria or 2) the school elected
    not to verify the student's application because the school had
    reached the 30 percent threshold for required verifications.[^3]

-   **W** -- The CPS selected the student's application for verification
    [and]{.underline} the school has elected to make an interim Pell
    Grant disbursement prior to completing the verification of the
    application data. The school updates the code to a **V** when
    verification is completed.

-   **Blank** -- Neither the CPS nor the school selected the student for
    verification.

Schools receive a monthly Pell Verification Status Report from the COD
system that shows students who have been selected by the CPS for
verification and have a blank or W status. In addition, schools can
request a Pell Reconciliation Report that shows the verification status
of all students who were selected by the CPS for verification.

Cerritos Community College (Cerritos) is a single-campus, public
community college accredited by the Accrediting Commission for Community
and Junior Colleges of the Western Association of Schools and Colleges.
Cerritos has an enrollment of about 21,000 students and offers
associate's degrees and certificates in more than 200 programs of study.
Educational programs are provided on a standard-term calendar that is
measured in semester credit hours.

Cerritos participates in the following HEA, Title IV programs: Federal
Pell Grant, Federal Supplemental Educational Opportunity Grant, Federal
Family Education Loan, and Federal Work-Study. During the period from
July 1, 2004, through June 30, 2005, Cerritos disbursed about \$15.8
million in Title IV funds, which included about \$12.5 million from the
Federal Pell Grant Program.

AUDIT RESULTS

Cerritos had policies and procedures that ensured FAFSA information was
verified in accordance with the applicable HEA provisions, Federal
regulations, and Department guidance. Our analysis of information in the
Department's databases identified 2,790 Cerritos students who had an
application selected by the CPS for verification and received a Pell
Grant disbursement for award year 2005‑2006. Our review of Cerritos'
student financial aid files for a sample of 26 of the 2,790 students
found that Cerritos properly performed verification by following its
written policies and procedures, obtaining appropriate student-provided
documentation, and accurately reporting changes in application
information to the CPS. However, Cerritos did not accurately report the
student's verification status to the Department's COD system for 25 of
the 26 students in the sample. In its comments to the draft report,
Cerritos concurred with our finding and recommendation. The comments are
summarized at the end of the finding and the full text of Cerritos'
comments is included as an attachment to the report.

**FINDING -- Cerritos Did Not Report Student Verification Status to the
COD System**

Only one of the 2,790 students identified in our analysis had a
verification status other than blank in the COD system. The one student
was accurately shown with a verification status of **V**. We reviewed
Cerritos' student financial aid files for the other 25 students in our
sample, who were randomly selected from the 2,789 students with a blank
status in the COD system. Our review found that the school had completed
the verification of those student applications. Thus, the verification
status in the COD system for the 25 students should have been **V**
rather than blank.

The correct verification status code was not reported to the COD system
because the financial aid specialists did not perform a final step in
the school's verification procedure. Cerritos implemented a new software
application for processing student financial aid for award year
2005-2006. The final step of the verification procedure under the new
software application was to enter **V** in the verification status field
of the database used to transmit information to the COD system.
Financial aid specialists had received training on use of the new
application, but the specialists did not receive information on the use
of the verification status field.

Also, Cerritos staff were unaware that the Department had been
transmitting COD Verification Status Reports to Cerritos through the new
software application. Since May 2006, the Department had been sending
reports for award year 2005-2006 that listed the students who were
selected for verification by the CPS and received a Pell Grant
disbursement, but were shown in the COD system with a blank verification
status code. Since Cerritos had not been accessing the reports, it was
unaware that the verification statuses were incorrect in the COD system.

In response to our finding, Cerritos appropriately updated the
verification status for the 25 sampled students from a blank to a **V**
in the COD system. Our review of information in the COD system found
that Cerritos had also changed the verification statuses for other
students. Cerritos' Acting Financial Aid Director advised us that staff
are now regularly obtaining the COD Verification Status Report to ensure
that student verification status is accurately recorded in the COD
system.

**Recommendation**

1.1 We recommend that the Chief Operating Officer for Federal Student
Aid take appropriate action to ensure that Cerritos' financial aid
specialists are properly recording the verification status in the
school's database and regularly reviewing the COD Verification Status
Reports to ensure that the verification status is being accurately
reported to the COD system.

**Cerritos' Comments**

Cerritos concurred with the finding. Cerritos stated that its Financial
Aid Office has implemented new business processes for verification and
that staff have received training on recording verification status in
the school's database and performing regular reviews of the COD
Verification Status Reports. Cerritos also stated that a copy of the OIG
audit report had been provided to its independent public accountant
(IPA) and that the IPA will include steps in its review to confirm that
staff are properly recording verification status and reviewing the COD
reports.

**OIG Response**

The actions described in Cerritos' comments should address our finding,
if properly designed and implemented. We have revised the recommendation
that was included in our draft report to address potential conflicts
with audit requirements in Office of Management and Budget Circular
A-133 and to provide FSA with more flexibility in selecting the method
used to confirm that Cerritos appropriately implemented the needed
corrective action.

OBJECTIVES, SCOPE, AND METHODOLOGY

Our audit objective was to determine if Cerritos completed verification
of applicant data and accurately reported verification results to the
Department. The audit covered award year 2005‑2006. To accomplish our
objective, we---

-   Gained an understanding of applicable laws, regulations, and the
    Department's *Federal Student Aid Handbook 2005-2006*, "Application
    and Verification Guide."

-   Reviewed Cerritos' audited financial statements prepared by its
    independent public accountant for the fiscal years ended
    June 30, 2004 and 2005, a recent guaranty agency report, and
    correspondence from Cerritos' accrediting agency.

-   Gained an understanding of Cerritos' internal control for the
    verification process by 1) reviewing Cerritos' written policies and
    procedures, 2) obtaining information on the manual and electronic
    processes applicable to verification and reporting of the
    verification status to the COD system, and 3) interviewing financial
    aid staff involved in the verification process.

-   Evaluated documentation in student financial aid files related to
    the verification of applicant data.

To evaluate Cerritos' procedures and compliance with verification
requirements, we reviewed documentation in student financial aid files
for 26 of the 2,790 Cerritos students who had an application selected
for verification by the CPS and who received a Pell Grant disbursement
for award year 2005‑2006. We reviewed the files for the one student that
had a verification status code of **V** and 25 students randomly
selected from the remaining 2,789 students with blank verification
status codes in the COD system.

We relied on data extracted from the CPS and the Department's National
Student Loan Data System to identify the Cerritos students who had an
application selected for verification by the CPS and who received a Pell
Grant disbursement for award year 2005‑2006 (sampling universe). To
assess the completeness of the extracted data, we compared the total
records on the extract to totals reported on Department management
information reports. During our review of student financial aid files
for the 26 students, we confirmed that the documentation showed that CPS
had selected the students for verification. We concluded that the
extracted data were sufficiently reliable for use in selecting the
sample of students reviewed in the audit.

We reviewed information in the COD system to confirm that Cerritos, in
response to our finding, had properly updated the student verification
statuses for the 25 sampled students who had a verification status code
of **V**.

We performed our fieldwork at the Cerritos campus in Norwalk,
California. We held an exit briefing with Cerritos officials on August
3, 2006. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review
described above.

ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other
conclusions and recommendations in this report, represent the opinions
of the Office of Inspector General. Determinations of corrective action
to be taken will be made by the appropriate Department of Education
officials.

If you have any additional comments or information that you believe may
have a bearing on the resolution of this audit, you should send them
directly to the following Education Department official, who will
consider them before taking final Departmental action on this audit:

> Theresa S. Shaw
>
> Chief Operating Officer, Federal Student Aid
>
> U.S. Department of Education

###### Union Center Plaza, Room 112G1

> 830 First Street, NE
>
> Washington, D.C. 20202

It is the policy of the U. S. Department of Education to expedite the
resolution of audits by initiating timely action on the findings and
recommendations contained therein. Therefore, receipt of your comments
within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. §552),
reports issued by the Office of Inspector General are available to
members of the press and general public to the extent information
contained therein is not subject to exemptions in the Act.

Sincerely,

/s/

> Gloria Pilotti

Regional Inspector General for Audit

Attachment

**Cerritos Community College's Comments to Draft Report**

February 20, 2007

Gloria Pilotti

Regional Inspector General for Audit

U.S. Department of Education

Office of Inspector General

501 I Street, Suite 9-200

Sacramento, California 95814-2559

Dear Ms. Pilotti,

Thank you for the Audit Report, dated January 25, 2007. Cerritos College
concurs with the finding of the audit. As cited in the Audit Report, we
appreciate the fact that the audit team from the Office of Inspector
General (OIG) recognized that the Financial Aid Office had policies and
procedures in place to "ensure FAFSA information was verified in
accordance with the applicable HEA provisions, Federal regulations, and
Department guidance." We also appreciate that the OIG audit team
recognized that "Cerritos College implemented a new software application
for processing student financial aid for award year 2005--2006 and that
the specialists did not receive information on the use of the
verification status field."

As cited in the report, once informed of the central issue with the
verification process, "Cerritos appropriately updated the verification
status for the 25 sampled students from a blank to a V in the COD
system." These records were sent to COD during the week of the program
review. Once these records were verified, we at Cerritos College
proceeded to update the remaining 2,764 students. These records were
updated and successfully sent to COD on August 3, 2006. Since then the
Financial Aid Office has continued to submit to COD the V code for all
files that were selected for verification.

As part of the corrective actions, the Financial Aid Office has
implemented new business processes for verifying records selected for
verification. Staff has been trained on the following:

-   Properly record verification status in PeopleSoft (school's
    database)

-   Regularly review the COD Verification Status Reports

We also concur with the recommendation, "that the Chief Operating
Officer for Federal Student Aid require Cerritos College to have its
independent public accountant, as part of the next scheduled audit,
confirm that financial aid specialists are properly recording the
verification status in the school's database and regularly reviewing the
COD Verification Status Reports to ensure that the verification status
is being accurately reported to the COD system." We provided our
independent public accountant with a copy of this audit report. The
accountant confirmed that the steps required in order to review the
verification process would be taken. The firm will also verify that the
Financial Aid Office is regularly reviewing the COD Verification Status
Reports.

Once again, thank you. We assure you that the responsible managers and
staff of the College will continue to provide appropriate training to
the Financial Aid staff in order to apply, monitor, and meet federal
regulations.

Sincerely,

Dr. Noelia Vela

President/Superintendent

[^1]: The Department's COD system performs a variety of functions
    related to awarding and disbursing Pell Grants, William D. Ford
    Federal Direct Loans, and funds from campus-based programs.

[^2]: Schools participating in the QA Program use their own criteria for
    selecting applications for verification that is tailored to their
    student population. QA schools are exempt from the requirement to
    verify 30 percent of student applications. Cerritos is not a
    participant in the QA Program

[^3]: In an Electronic Announcement dated March 9, 2006, the Department
    explained that schools may report either an **S** or leave the
    verification status blank for students in the excluded category
    (i.e., incarceration, recent immigrant, spouse unavailable, parents
    unavailable, death of the student, applicant verified by another
    school, Pacific Island resident, or not an aid recipient). Schools
    are not required to complete verification for students in the
    excluded category.