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Exceptional

Performer

Procedures

February 27, 2006

TABLE OF CONTENTS

[**Application Review Procedures 1**](#application-review-procedures)

[Quarterly Audit Review Procedures
4](#quarterly-audit-review-procedures)

[Annual Audit Review Procedures 6](#annual-audit-review-procedures)

[On Site Review Procedures 8](#on-site-review-procedures)

[EPIV.1 - CONVERSION TO REPAYMENT 10](#epiv.1---conversion-to-repayment)

[EPIV.2 - DUE DILIGENCE IN LOAN COLLECTION ACTIVITIES
12](#epiv.2---due-diligence-in-loan-collection-activities)

[EPIV.3 - VERIFICATION OF COLLECTION INFORMATION IN AUTOMATED SYSTEMS
13](#epiv.3---verification-of-collection-information-in-automated-systems)

[EPIV.4 - TIMELY CLAIM FILING 14](#epiv.4---timely-claim-filing)

[EPIV.5 - EP REVIEW OF SERVICERS 15](#epiv.5---ep-review-of-servicers)

[Appendix A - Documentation Request Attachment:
16](#appendix-a---documentation-request-attachment)

[Appendix B -- Sample Excel Sheet for Due Diligence Reviews
17](#appendix-b-sample-excel-sheet-for-due-diligence-reviews)

# **Application Review Procedures**

**[Introduction]{.underline}**: To apply for a designation of
exceptional performer, lenders and lender servicers are required to
submit specific items to the Secretary as set forth in 34 CFR
682.415(a)(2). These items include submission of a compliance audit of
its loan portfolio conducted by a qualified independent organization in
accordance with the OIG EP Guide. This agreed-upon procedures engagement
is to cover the 12-month period ending no more than 90 days prior to the
date the lender or servicer submits its request for designation.

> The OIG Audit guide requires an agreed-upon procedures level
> attestation engagement, identifies specific sampling and evaluation
> techniques and requires the practitioner to perform certain procedures
> and report his/her results. In addition, the Management\'s Assertion
> must include an assertion that it (the lender or lender servicer)
> maintained an overall compliance performance percentage of 97 percent
> or higher pertaining to due diligence requirements applicable to each
> loan, on average, during the engagement period, with respect to
> converting FFEL program loans to repayment, collecting delinquent
> loans, and filing timely claims with the guaranty agency.

**[Purpose]{.underline}:** The purpose of this chapter is to provide
instruction on reviewing the initial application package submitted by
qualifying lenders or lender servicers to request designation as an
Exceptional Performer. (34 CFR 682.415, the OIG Exceptional Performer
Guide). These instructions are based on current Financial Partner's
written procedures.

**[Procedures]{.underline}:** The requirements found in federal
regulations and in the Exceptional Performer OIG Audit Guide are very
specific.

> ED must provide its response to accept or deny an application for
> Exceptional Performer within 60 days of the date the initial
> submission package is received at an ED office.

**[Examples of]{.underline}**

**[Documents]{.underline}**: A copy of the lender or a lender servicer's
complete Initial Submission Package, including record of the date it was
received by ED Financial Partner Services.

Cover letter from the applicant providing demographic information,
contact information, lenders ID numbers and the names and addresses of
all applicable guaranty agencies.

> Required financial or compliance audit as defined in the requirements
> on page III-2 of the OIG EP Guide.
>
> Statement certifying that the applicant meets the definition of a
> servicer contained in 34 C.F.R. § 682.415(d)(3), if applicable, signed
> by the owner or chief executive officer of the entity.

A complete copy of the Practitioner's Reporting Package.

Copy of Practitioner\'s Engagement Letter,

> Copy of Management's Assertions and Representations (See OIG EP Guide,
> Appendix G, example 2)
>
> Copies of emails or letters from each appropriate Guaranty Agency that
> verifies GA's receipt of a complete submission package and responses
> to ED questions regarding the guarantor's claim filing experience with
> the EP Applicant.
>
> Audit workpapers provided by the practitioner to support the audit
> performed, including but not limited to: Universe of loans and
> sampling method used to select loans for review. List of loans
> selected, including loans reviewed that did not contain required
> activities.
>
> Copies of supporting Tables on pages G-4 through G-17. Other audit
> worksheets to support the Tables.
>
> Transaction and servicing histories for a sample selected from the
> loans sampled for the audit.

**[Methodology]{.underline}**: Review Practitioner\'s Submission Package
for completeness and to verify EP Audit met requirements of OIG EP Guide
and that the performance compliance percent was equal to at least 97%.

> Review Audit Workpapers to verify accuracy of audit results:

-   Contact Audit Firm and arrange for date to visit a local office (or
    for the workpapers to be sent to Regional office).

-   Select a judgmental sample of loans reviewed by audit firm and
    conduct due diligence file review to test auditor results.

-   Review audit workpapers including audit plan, sample selection
    methodology, sample size, confidence level and deviation percentage,
    engagement correspondence, and sign off by Auditor in Charge.

Forward final recommendation to FP Officials.

# **Quarterly Audit Review Procedures**

**[Introduction]{.underline}**: After receiving EP designation, entities
are required to have the agreed-upon procedures engagements performed
quarterly. The lender or lender servicer is to send ED a complete
quarterly submission package within 90 days following the end of each
quarter. This package should be submitted to the designated FPS regional
office. The first quarterly engagement is to cover the 3-month period
starting the day after the end of the 12-month period covered in the
initial application. (Note: For all quarterly engagements, there should
be no lapses or gaps of audit coverage.)

> The first quarterly submission is due within 90 days of the effective
> date of exceptional performer designation. (If the effective date is
> after the end of the first quarter, EP could send a complete
> submission package covering each of the lapsed quarters.).
>
> The fourth quarterly submission should be submitted as part of the
> subsequent annual submission. Practitioners are to compute and report
> a compliance performance percentage for the fourth quarter and for
> each month in that quarter, based on the representative coverage of
> fourth quarter activity reviewed. The practitioner may select its
> sample size using a 90% confidence level. (See tables in OIG EP Guide,
> Appendix F-2)

**[Purpose]{.underline}:** To verify that all required documentation was
provided in an Exceptional Performer's Subsequent Quarterly Compliance
Engagement submissions (Quarterly Submission Package) and that the
compliance percentage met minimum requirements for continuation of EP
designations. (34 CFR 682.415 and the OIG EP Guide)

**[Examples of]{.underline}**

**[Documents]{.underline}**: -The Exceptional Performer's quarterly
submission package including record of the date it was received by ED
Financial Partner Services.

-Cover letter from the lender or lender servicer providing demographic
information, contact information, lender ID numbers and the names and
addresses of all applicable guaranty agencies.

> -Letter or email from the lender or lender servicer that certifies
> that a complete Quarterly Submission Package was sent to the
> appropriate guaranty agencies.
>
> -A complete copy of the Practitioner's Reporting Package:
>
> -Copy of Management's Assertions and Representations (See OIG EP
> Guide, Appendix G, example 2)

# **Annual Audit Review Procedures**

**[Introduction]{.underline}:** Regulations specify that Lenders and
Lender Servicers designated as Exceptional Performers are required to
have continued Subsequent Annual Compliance Engagements performed to
maintain EP designation. The engagement is cover the 12-month period
that begins on the day following the last day covered in the Initial
Compliance engagement or the most recent Annual Compliance Engagement.
ED must receive the Annual Submission Package within 90 days of the end
of the 12-month period. The date that should be used for determining
whether or not the entity complied with the 90-day requirement is the
date that the Subsequent Annual Compliance submission package was
received by the FPS regional office. There can be no periods that are
not covered by the audit or gaps between audits.

> The regulations state that the annual engagement can be conducted with
> a representative sample from the fourth quarter. Therefore, after
> receiving EP designation, entities may submit three quarterly
> engagements and an annual engagement that includes samples
> representative of the fourth quarter.
>
> In determining the compliance performance calculation for the annual
> engagement, the agreed-upon procedures performed for the four
> quarterly engagements can also be used. The practitioner must ensure
> that the sample size used for the annual submission equals or exceeds
> the size needed to provide a 95% confidence level. (See tables in OIG
> EP Guide, Appendix F, page 1)

**[Purpose]{.underline}:** To verify that all required documentation was
provided in an Exceptional Performer's Subsequent Annual Submission
Package and that the compliance performance percentage met minimum
requirements for continuation of EP designation. (34 CFR 682.415 and the
OIG EP Guide)

**[Examples of]{.underline}**

**[Documents]{.underline}:** -The Exceptional Performer's annual audit
submission package including record of the date it was received by ED
Financial Partner Services.

> -Cover letter from the lender or lender servicer providing demographic
> information, contact information, lender ID numbers, the names and
> addresses of all applicable guaranty agencies, and a request for
> re-designation.
>
> -Letter or email from the lender or lender servicer that certifies
> that a complete Annual Submission Package was sent to the appropriate
> guaranty agencies.
>
> -A complete copy of the Practitioner's Reporting Package
>
> -Copy of Management's Assertions and Representations

# **On Site Review Procedures**

[Purpose]{.underline}: The purpose of this procedure is to provide
instructions for conducting an on-site review of a lender or lender
servicer designated as an exceptional performer.

**[Scope]{.underline}:** The scope of the review should begin with the
initial designation date. In cases where an ED review has already been
conducted, the scope of the review would begin with the date after the
last ED review scope. The scope is focused on the exceptional performer
provisions and any automated or manual procedures that impact these
provisions, including but not limited to: lender manifest processing,
payment processing, cure account, call center functions, skip tracing
functions, claims processing, and any activities that the
lender/servicer perform which are proactive and designed to measure
effectiveness or monitor program administration.

**[Loan Sample]{.underline}:** The lender or lender servicer must
provide an electronic listing of loans in the following categories from
which a statistically valid sample can be pulled:

-   All loans that were converted to repayment during the review scope

-   All loans that were at least 15 days delinquent at any time during
    the review scope

-   All loans where a claim has been filed during review scope.

**[Suggested]{.underline}**

**[Documentation]{.underline}**

**[Request]{.underline}**: [Prior to the site visit]{.underline}, the
entity should provide the following information. This documentation
should be reviewed prior to the site visit.

-   Loan sample;

-   Procedural manual for collections, repayment conversion, skip
    tracking, call center, payment applications, claims processing,
    etc.;

-   Organizational charts of the lender or servicer including a
    relationship with Parent Corporation;

-   System controls for automated collection letter processing;

-   Mailroom operational procedures as they pertain to collection
    activities;

-   Listing of management reports used to monitor claims and collections
    processes, including: skip tracing, claims processing, and any
    proactive activities performed by the entity;

-   Copies of standardized collection letters and other generalized
    correspondence; and,

-   Other documentation as determined by the team lead

> To be available [on-site for review]{.underline}:

-   Request a financial transaction history and servicing history for
    each borrower in sample

-   Documentation supporting the activities conducted (i.e. repayment
    conversion information, last date of attendance documentation,
    payment histories, claim packages, etc.)

-   Random sampling of telephone bills as compared to system collection
    history from sample selected

-   Judgmental sample of returned mail to verify skip tracing activities
    and system date integrity

-   Other documentation as determined by the team lead

## 

### **EPIV.1 - CONVERSION TO REPAYMENT** 

**[Purpose]{.underline}:** To verify that the lender converted loans to
repayment in accordance with regulatory requirements. (34 CFR 682.209)

**[Examples of]{.underline}**

**[Documents:]{.underline}** Written procedures for conversion to
repayment.

Application Promissory Note

> Forbearance or deferments prior to first payment due date Repayment
> Schedule/Disclosure Statement

Correspondence History.

Transaction history.

**[Suggested]{.underline}**

**[Methodology:]{.underline}** Review written processes to determine
that procedures for tracking enrollment, borrower status change dates
and the conversion to repayment, including loans converted late and the
corrective adjustments are in compliance. (This should be obtained and
reviewed prior to the site visit.)

Interview appropriate staff to determine that procedures to track
enrollment or borrower status change information and the conversion to
repayment, including loans converted late and the corrective adjustments
match lender written procedures. Identify any quality control activities
and methods used to prevent, detect and correct errors.

> Interview staff to determine management control and quality assurance
> processes to ensure compliance in conversion to repayment.

**Analyze a sample of loans to:**

Compare loan data provided by the lender prior to the site visit with
data on ED's NSLDS system. Verify the following for each loan: Lender
data agrees with school enrollment status history; loan status history;
the grace period begin date; and, the repayment start date. Resolve any
discrepancies with the lender while on site.

Verify that the lender holds a valid promissory note.

Verify deferments and forbearance agreements that impact the repayment
start date, or first payment due date for completeness and accuracy.

Verify that the forbearance form has not been altered or used as an
FB/Repayment Agreement or accepted as a cure of loans.

> Verify date and amount of loans disbursements and cancellations and
> date converted to repayment on borrower transaction histories.
>
> Review loan history to verify student's graduation date, conversion to
> repayment date and first payment due date match electronic summary
> data provided prior to the review and other file documentation
> available.

Review collection histories and follow up on any anomalies found.

Review Repayment schedule and Disclosure statement for accuracy and
completeness. Verify the lender sent a copy to the borrower timely and
that the repayment start date was set up within 45 days or repayment
start date.

Verify that the monthly amount required on the Repayment
Schedule/Disclosure Statement will pay the loan in full within the time
limit required by regulation.

Other -- since the methodology above may not be all-inclusive, the
reviewer may see the need to add steps as the work progresses.

### **EPIV.2 - DUE DILIGENCE IN LOAN COLLECTION ACTIVITIES**

**[Purpose]{.underline}:** To verify that the entity collects loans in
compliance with collection due diligence and cure requirements. (34 CFR
682.411 for either the 1986 or 1992 regulations.)

**[Examples of]{.underline}**

**[Documents]{.underline}:** Electronic systems of collection activities

Lender written procedures

Application/Promissory Note

Financial transaction History

Servicing History

Excel Spreadsheet for Due Diligence Analysis (see Appendix I for
example)

**[Suggested]{.underline}**

**[Methodology]{.underline}:** Review written procedures to determine
whether the collections due diligence procedures are in compliance.
(This should be obtained and reviewed prior to the site visit.)

Interview appropriate staff to verify that the collection due diligence
procedures follow the written procedures. Determine managerial controls,
including separation of duties and system security and access

Determine that all collection activities recorded in lender's electronic
system meet collection due diligence requirements.

Review payment processing systems and the timeliness of payments made
and affect on delinquency status (rolling delinquency).

### **EPIV.3 - VERIFICATION OF COLLECTION INFORMATION IN AUTOMATED SYSTEMS**

### 

**[Purpose]{.underline}:** To verify the accuracy of information in the
entity's collection system and reports. 34 CFR 682.411 for either the
1986 or 1992 regulations.

**[Examples of]{.underline}**

**[Documents]{.underline}:** Copies of collection letters, delinquency
reports or other tracking devices of delinquency

Electronic systems records of automated letters issued/mailed

Lender written procedures of mailroom and other procedural activities

> List of Contractors used for any aspect of loan or collection
> servicing.

**[Suggested]{.underline}**

**[Methodology]{.underline}:** Interview appropriate managers to
determine process for letter generation and mailing. (This should be
obtained and reviewed prior to the site visit.)

Examine mailroom activities and document procedures.

Verify collection letter content meets requirements outlined in 682.411.

Verify that mail is remitted the same day as indicated in borrower
servicing histories.

Visit mailroom and select some returned mailed to verify the date mailed
and to determine if skip tracing requirements were followed.

Verify actual dates of phone calls using itemized telephone bills or
returned mail, requests for default aversion assistance, and final
demand letters.

Verify that electronic records of collection activities are accurately
reporting activities.

### **EPIV.4 - TIMELY CLAIM FILING**

**[Purpose]{.underline}:** To verify compliance with collection due
diligence and timely filing and cure requirements. (34 CFR 682.406 and
34 CFR 682.411 for either the 1986 or 1992 regulations; 34 CFR 682
Appendix D.)

**[Examples of]{.underline}**

**[Documents]{.underline}:** Application/Promissory Note

Lender written procedures

Claim packages

Borrower Transaction Histories

**[Suggested]{.underline}**

**[Methodology]{.underline}:** Review written procedures to determine
whether the following are in compliance: claim filing and claim
reimbursement processing; procedures for processing borrower payments
after claim is filed; and policy and procedures for recalling claims for
borrowers who make payments or provide other documentation to bring
account under 180 or 270 days delinquent after the claim is filed. (This
should be obtained and reviewed prior to the site visit.)

Interview appropriate staff to determine whether entity is following
it's own procedures in: claim filing and claim reimbursement processing;
procedures for processing borrower payments after claim is filed; and
policy and procedures for recalling claims for borrowers who make
payments or provide other documentation to bring account under 180 or
270 days delinquent after the claim is filed.

Review accounts to verify that the lender forwards to the guaranty
agency all payments after claim was filed. Verify that the money is sent
to the guaranty agency timely based on the guaranty agency's policies.

Verify that cures are performed in accordance with Appendix D of 34 CFR
682.

Verify that defaulted loans are appropriately reported to at least one
national credit bureau.

### **EPIV.5 - EP REVIEW OF SERVICERS**

**[Purpose]{.underline}:** To ascertain that a servicer designated as an
Exceptional Performer under the Act meets the standards of
administrative capability in all functions related to the collection
activities that are required to maintain the EP Status. To determine
that systems, procedures and policies of the servicer provides
reasonable assurance of detecting instances of risk or noncompliance
and, when necessary, prompt corrective action is taken to ensure program
integrity. To ensure that the servicer meets the standards of financial
responsibility. (20 USC 1082, 34 CFR 682.416 (a) and (b). 20 USC 1082,
34 CFR 682.415.)

**[Examples of]{.underline}**

**[Documents]{.underline}**: Organization Chart (including high level
and collections organization chart with position titles and staffing

Written overview of systems including those used for loan maintenance,
accounting system, collections, including auto-dialer

> System change log
>
> System security procedures

Audited financial statements

Third Party Compliance Audits

Automated systems documentation

**[Suggested]{.underline}**

**[Methodology:]{.underline}** Review manuals to determine whether
operational procedures are in compliance. (This should be obtained and
reviewed prior to the site visit.)

Interview appropriate managers to determine whether operational
procedures are in compliance. Review internal reports, adequacy of
staff, and staff knowledge and experience servicing and collecting
student loans.

> Verify that all marketing materials and advertising do not offer
> inducements or any other payments based upon loan volume.
>
> Review systems documentation to determine changes, timeliness of
> changes, and applicability to loans.
>
> Other -- since the methodology above may not be all-inclusive, the
> reviewer may see the need to add steps as the work progresses. These
> additions should be explained in the review workpapers.

## Appendix A - Documentation Request Attachment:

**General (preferably in electronic format)**

-   Copies of all collection letters used\*

-   Internal procedures manual on loan collection & claim processing and
    electronic procedures for borrower contact and payment\*

-   System controls for automated collection letter processing\*

-   Mailroom operational procedures as it pertains to collection
    activities\*

-   Policies for use of electronic collection procedures\*

-   Telephone bills for random telephone calls for borrowers in sample.

-   Judgmental sample to be selected on site from returned mail for skip
    tracing and system date verification

**\***To be provided [before]{.underline} the review

**Conversion Sample:**

-   Promissory note and notice of guaranty to establish loan existence

-   Documentation used by lender to set end of grace period

-   Documentation used to notify borrower of conversion

-   Repayment schedules

-   Financial Transaction Histories

-   Complete Servicing Histories to including disbursement information,
    last date of attendance, conversion to repayment, first payment due
    date, and all delinquency collection activity performed during the
    review scope.

**Delinquency Sample:**

-   Promissory note and notice of guaranty to establish loan existence

-   Financial Transaction Histories

-   Complete Servicing Histories as described under "Conversion Sample"

**Claim Sample:**

-   Promissory note and notice of guaranty to establish loan existence

-   Claim Package (including submission form and supporting
    documentation)

-   Financial Transaction Histories

-   Complete Servicing Histories as described under "Conversion Sample"

## Appendix B -- Sample Excel Sheet for Due Diligence Reviews

  --------------------- ------------- ------------ ---------------------------------- --- ---
  Borrower                            Account                                              
                                      Number                                              

  SSN                                                                                      

  Sample No.                                                                               

                                                                                          

  **MISSED PAYMENT DUE                                                                    
  DATE**                                                                                  

                                                                                          

  **Delinquent 1-15                                                                       
  days **                                                                                 

  **Letter Sent**                                                                         

  **Date:**                                                                               

                                                                                          

                                                                                           

  **Delinquent 16-180                 **Four Phone                                        
  days**                              Attempts**                                          

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

                                                                                          

  **Letters Sent**                                                                        

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

                                                                                          

  **Delinquent 181-240                **Phone                                             
  days**                              Attempts**                                          

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

                                                                                          

  **Letters Sent**                                                                        

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

  **Date:**                                                                               

                                                                                          

                                                                                           

  **FINAL DEMAND**      **Demand                                                          
                        Letter Sent**                                                     

  **Default Aversion    **Date of                                                         
  Assistance Request**  DAAR**                                                            
  --------------------- ------------- ------------ ---------------------------------- --- ---