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August 25, 2006

#### FINAL MANAGEMENT INFORMATION REPORT

##### Student Financial Aid No. 06-01 {#student-financial-aid-no.-06-01 .Enclosure-Number}

##  {#section .Style1}

**TO:** Theresa S. Shaw

Chief Operating Officer

Federal Student Aid

**FROM:** Helen Lew /s/

Assistant Inspector General for Audit

**SUBJECT**: *Hurricane Relief Funds Provided to Mississippi
Institutions of Higher Learning*

> **Control Number ED OIG/A04-G0014**

The purpose of this information report is to close out our audit by
informing you of the results of our work to date on our audit of
*Hurricane Relief Funds Provided to Mississippi Institutions of Higher
Learning*. At this time we are unable to fully meet our audit objectives
because the Mississippi Institutions of Higher Learning (IHL) has until
September 30, 2006, to obligate the hurricane relief funding, and
material events may occur in IHL's administration of the hurricane
relief funding that could impact our current assessment. We will begin a
separate audit to assess IHL's final distribution of the hurricane
relief funds and perform additional audit work after the completion of
the funding period ended September 30, 2006.

The audit was initiated to evaluate IHL's administration of the \$95
million appropriation authorized by the Department of Defense, Emergency
Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico,
and Pandemic Influenza Act, 2006 (Public Law 109-148). Specifically, our
audit objectives were (1) to assess IHL's methodology for allocating
hurricane relief funds to schools, and to evaluate the adequacy of
information provided by schools to IHL; and (2) to identify and assess
IHL's controls over the accounting for the hurricane relief funds and
compliance with laws and regulations. Our work covered the period
February 1, 2006, to July 20, 2006.

IHL has implemented a methodology to allocate hurricane relief funds to
its institutions and to make hurricane relief assistance awards to
eligible students through the Special Leveraging Educational Assistance
Partnership (SLEAP) Program. For the \$50.5 million in hurricane relief
funds spent as of July 20, 2006, through the SLEAP Program, IHL appears
to have implemented an adequate internal control system. In our initial
audit work performed in March through May 2006, we found that some
institutions may have difficulty spending their full allocation of
hurricane relief funding. In July 2006, after our initial audit work,
IHL reallocated hurricane relief funds to institutions and received
affirmation from each institution that it intend to fully obligate
hurricane relief funds by September 30, 2006.

##### Background {#background .Enclosure-Number}

##### As a result of the effects of Hurricanes Katrina and Rita, IHL received an appropriation of \$95 million authorized by the Department of Defense, Emergency Supplemental Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 (Public Law 109-148) to provide hurricane relief funding to Mississippi higher education students. IHL developed a methodology to provide hurricane relief funding to affected students through the SLEAP Program. IHL's methodology was in accordance with its agreement with the Department of Education (Department), Federal Student Aid (FSA), signed on January 24, 2006, governing its administration of the \$95 million in hurricane relief funds. The agreement reflects IHL's intent to deliver the hurricane relief funds to students through the SLEAP Program.

##### 

##### With the assistance and approval of the Department, IHL developed a SLEAP Policy to provide direction to the participating institutions on eligibility requirements for the SLEAP Program. The Federal Emergency Management Agency (FEMA) designated the entire State of Mississippi as a hurricane impacted area, which, as provided by the SLEAP Policy, made all higher education students in Mississippi potentially eligible for hurricane relief funding. To participate in the SLEAP Program, students were also required to attend an institution that met the definition of an institution under Section 102 of the Higher Education Act of 1965, as amended (HEA), and to meet the student eligibility criteria to receive Title IV funds. As a result, hurricane relief funding was provided to students who attended large public universities, community colleges, private nonprofit colleges, and proprietary schools throughout Mississippi. 

Recent changes enacted on June 15, 2006, in the Emergency Supplemental
Appropriations Act for Defense, the Global War on Terror, and Hurricane
Recovery, 2006 (Pub. L. 109-234) will allow hurricane relief funds
provided to IHL to be spent for institutional purposes under Title VII
of the HEA. The Director of the IHL SLEAP Program informed us that IHL
does not plan to redirect any of the \$95 million in hurricane relief
funds to Title VII programs. The Director stated that the hurricane
relief funds must be obligated by September 30, 2006, and the number of
steps to accomplish the redirection of hurricane relief funds before
this time would make it unrealistic to implement a program to use
hurricane relief funds for institutional purposes under Title VII.

## IHL Allocation Methodology In Accordance With SLEAP Program Regulations

## 

IHL used its existing Leveraging Educational Assistance Partnership
(LEAP) Program allocation formula, as approved by FSA in May 2005, as a
basis for distributing the hurricane relief funds. The existing LEAP
participation agreement with FSA was amended to incorporate the SLEAP
Program on February 1, 2006. The LEAP formula prorates the hurricane
relief funds allocated to institutions based on the number of attending
students and the average cost of attendance for all participating
institutions. IHL also requested an estimate of expected hurricane
relief funding needs from each institution participating in the SLEAP
Program. The IHL Director stated that due to the short time period to
disburse the hurricane relief funding, IHL did not provide detailed
guidance to institutions about the method that should be used to
calculate this estimate of hurricane relief funds needed.

During the initial allocation of hurricane relief funds in February
2006, if an institution identified less hurricane relief needs than the
amount calculated under IHL's current SLEAP allocation formula, the
excess funds were placed in a pool and redistributed to Mississippi's
five largest coastal institutions. As a result, \$33.5 million in
hurricane relief funds were redistributed to the five largest coastal
universities and colleges in addition to what they received under the
initial SLEAP formula allocation. IHL management limited the
reallocation of hurricane relief funds to the five largest coastal
institutions because coastal universities and colleges were the most
impacted by Hurricane Katrina.

At the time of the initial allocation, IHL informed the institutions
that it would make a reassessment of the institutions' use of the
hurricane relief funds in June 2006 based on actual experience in making
SLEAP grant awards to students. In June 2006, institutions requested IHL
to redistribute \$376,000 that had originally been allocated to them to
other institutions that had remaining hurricane relief funding needs.
IHL reallocated the \$376,000 in hurricane relief funds to four small
institutions that during the initial allocation had requested
significantly less hurricane relief funds than were allowed by the SLEAP
allocation formula. The IHL SLEAP Director also required the
institutions to reassert that they would obligate all their hurricane
relief funds by September 30, 2006. As of July 19, 2006, IHL through its
participating institutions has awarded approximately \$50.5 million (53
percent) in SLEAP grants to students.

## 

## IHL Implemented Controls Over Use of Hurricane Funds

IHL appears to have implemented a reasonable control system over the use
of hurricane relief funds. IHL used its existing student financial aid
systems to implement controls over the SLEAP Program that was used to
provide hurricane relief funding. IHL's Mississippi Office of Student
Financial Aid (MOFSA) has experience administering FSA and State grant
programs for the state universities in Mississippi. IHL incorporated its
existing controls over the LEAP Program into its SLEAP Program when it
was created to use the hurricane funding. Based on our review to date,
we did not identify any significant internal control weaknesses from
IHL's past Office of Management and Budget (OMB) Circular A-133 audit
reports.

To evaluate the controls over the SLEAP Program, we interviewed IHL
staff and reviewed documentation related to IHL's administration of the
SLEAP Program. We traced the institutional requests for reimbursement of
SLEAP grant awards through IHL's accounting system. We found that IHL's
controls over the SLEAP Program appeared to be functioning as designed
and should provide reasonable assurance over the proper use and
accounting for the hurricane relief funding at IHL if maintained and
followed. A listing of the controls tested at IHL is detailed in the
objectives, scope, and methodology section of this report.

## Institutional SLEAP Grant Awards In Accordance With SLEAP Policy

In order to determine institutional compliance with the IHL SLEAP
Policy, we performed an onsite review of 6 of the 37 institutions
participating in the SLEAP Program. The 6 institutions we tested were
the University of Mississippi, the University of Southern Mississippi,
Gulf Coast Community College, Jones County Junior College, William Carey
College, and Academy of Hair Design. We found that the institutions
tested had made sufficient effort to notify students of the availability
of the hurricane relief funding and were making awards to the students
in accordance with the SLEAP Policy.

At each institution, we tested 50 randomly selected SLEAP grant awards
to determine whether the institution had adequate controls over the
SLEAP grants in conformance with IHL's SLEAP Policy guidance. We did not
identify any SLEAP awards that were not supported by the student files.
No SLEAP grant awards exceeded the student's unmet financial need (cost
of attendance less other financial aid and expected family contribution)
although, in some instances, a professional judgment determination
increased the student's cost of attendance.

Professional judgment determinations were in accordance with the IHL
SLEAP Policy and adequately documented the need of the student. The IHL
SLEAP Policy allowed institutions to adjust the cost of attendance or
expected family contributions if the student had a major financial need
arising from the hurricanes. Professional judgments were most often used
when a student had major damage to their home resulting in displacement
and when the student or their parent lost employment. Of the 300 SLEAP
awards reviewed at the six institutions, 37 were professional judgment
determinations.

##### Objectives, Scope, and Methodology {#objectives-scope-and-methodology .Enclosure-Number}

The audit objectives were to (1) assess IHL's methodology for allocating
hurricane relief funds to schools, and evaluate the adequacy of
information provided by schools to IHL; and (2) identify and assess
IHL's controls over the accounting for the funds and compliance with
laws and regulations. Our work covered the period February 1, 2006, to
July 19, 2006.

To evaluate the controls over the SLEAP Program, we interviewed IHL
staff and reviewed documents related to IHL's administration of the
SLEAP Program. From our audit fieldwork, we identified and tested the
controls over the following key processes in the IHL SLEAP Program.

● Institutional eligibility.

● Institutional certification statements.

● Institutional allocation amount.

● File layout development for institutions to request funds.

● Institutional reimbursement request submissions to IHL.

● SLEAP grant awards inputted into the IHL accounting system.

● Fund draws from the Department.

● Funds disbursed to the Institutions.

● Preparation of balancing report.

● Preparation of summary reports submitted to the Department.

In addition to testing the controls at IHL, we performed audit fieldwork
at 6 of the 37 institutions participating in the SLEAP Program. The IHL
allocation of the \$95 million to the institutions can be broken out by
category of institution: proprietary, public, community college, or
private nonprofit. We initially judgmentally selected four institutions
based on the institution with the highest dollar allocation in each
category. The institutions selected were --

> ● University of Southern Mississippi.\
> ● Mississippi Gulf Coast Community College.\
> ● Academy of Hair Design.\
> ● William Carey College.

Two additional institutions were selected for review based on an
analysis of SLEAP funds spent as of May 12, 2006. We judgmentally
selected the University of Mississippi and Jones County Junior College
because they had a large allocation of SLEAP funds and requested little
in fund reimbursements from IHL.

To test IHL controls at the institutional level, we randomly selected 50
student files at each institution and tested those files for adherence
to SLEAP Program requirements. Our sample for each institution tested
was pulled from the student roster reports submitted by each institution
in order to be reimbursed for its SLEAP grant awards. IHL provided each
institution a software program that required specific information be
entered for each SLEAP grant award. This information was summarized and
submitted to IHL in a student roster report for reimbursement.

The primary information tested was in the data fields of the student
roster report requests submitted by each institution to be reimbursed by
IHL for SLEAP grant awards. We performed the following audit procedures
to verify the information.

> ● Reviewed the student application for hurricane relief assistance.
>
> ● Reviewed financial aid award documentation and student summary
> reports to support
>
> other financial aid amounts. Other financial aid refers to all student
> financial aid
>
> received by the student which along with expected family contribution
> is subtracted
>
> from cost of attendance to determine the student's unmet financial
> need. SLEAP
>
> grants cannot exceed the student's unmet need.

● Identified cost of attendance in the student file.

> ● Identified the hurricane award amount and confirmed that it was paid
> in the student
>
> summary reports.
>
> ● Verified that the hurricane award did not exceed the unmet need
> (cost of attendance
>
> less other financial aid and expected family contribution).
>
> ● For professional judgment determinations, we verified that there was
> a SLEAP
>
> application.
>
> ● For professional judgment determinations, we evaluated the
> reasonableness of the
>
> adjustments to expected family contribution or cost of attendance.

In addition to testing information submitted to IHL for reimbursement of
SLEAP grants awarded to students, we interviewed financial aid staff at
each institution regarding their efforts to notify students of the
availability of the SLEAP grant awards and their initial determination
of hurricane need used by IHL for allocation of the \$95 million in
hurricane relief funds. We also asked the financial aid staff if they
anticipated any difficulty in using their allocation of SLEAP grant
funds.

To meet the objectives of our audit, we relied, in part, on
computer-processsed data that IHL used to summarize and report SLEAP
grant awards. As discussed above, we tested the controls at IHL and the
institutions to verify the accuracy of the information contained in the
student roster reports used by IHL to record expenditures in its
accounting system and request reimbursement from the Department for
SLEAP grant awards. Based on our assessment and tests to date, we
concluded that the computer-processed data provided by IHL and the
institutions was sufficiently reliable for the purpose of our audit.

We conducted our audit fieldwork during the period February 2006 through
July 2006. As part of our audit, we visited (1) IHL's offices in
Jackson, MS; (2) Mississippi Gulf Coast Community College in Perkinson,
Gulfport, and Biloxi, MS; (3) University of Southern Mississippi in
Hattiesburg, MS; (4) William Carey College in Hattiesburg, MS; (5)
University of Mississippi in Oxford, MS; (6) Academy of Hair Design in
Jackson, MS; (7) and Jones County Junior College, in Ellisville, MS. We
contacted IHL and institutional officials as necessary to obtain
additional information and clarifications during our audit work.

The audit was performed in accordance with generally accepted government
auditing standards appropriate to the scope of the review described
above. At this time we are unable to fully meet our audit objectives due
to Mississippi Institutions of Higher Learning's (IHL's) ongoing efforts
to provide hurricane relief funding to students. In addition, recent
changes in the law may divert some of the hurricane relief funding to
institutional support under Title VII, although the IHL Director stated
that IHL does not currently intend to redirect the hurricane relief
funding from the SLEAP Program.

##### Administrative Matters {#administrative-matters .Enclosure-Number}

We are closing this audit because no further audit work can be performed
at this time. IHL has until September 30, 2006, to obligate the
hurricane relief funding, and material events may occur in IHL's
administration of the hurricane relief funding that could impact our
current assessment. Subsequent to the expiration of the hurricane relief
funding availability effective September 30, 2006, we anticipate
beginning a separate audit to complete an assessment of IHL's
administration of the \$95 million in hurricane relief funding. The
information provided in this management information report is for
informational purposes only. It is not to be considered a completed
assessment of IHL's administration of the \$95 million in hurricane
relief funding received by IHL.

cc: James Manning

Acting Assistant Secretary for Postsecondary Education

Thomas C. Meredith

Mississippi Institutions of Higher Learning