#### September 29, 2003

#### 

#### 

#### Mr. Richard Skovgaard

######## Director/Center Manager

######## FlightSafety Academy

2805 Airport Drive

P.O. Box 2708

Vero Beach, FL 32961

#### 

Dear Mr. Skovgaard:

This **Final Audit Report** (Control Number ED-OIG/A06-C0035) presents
the results of our audit of FlightSafety Academy's compliance with
Student Financial Assistance citizenship and program eligibility
requirements, under Title IV of the Higher Education Act of 1965, as
amended (HEA). Our initial objective was to determine if FlightSafety
Academy (FlightSafety) had adequate controls to ensure PLUS borrowers
met the Title IV citizenship requirements. While on site at the school,
we identified concerns with the eligibility of the programs offered and
added a second objective, to determine if Title IV aid was disbursed to
students enrolled in ineligible programs.

A draft of this Office of Inspector General report was provided to
FlightSafety. FlightSafety did not agree with our finding and
recommendations. We have summarized FlightSafety's comments after the
Subsequent Events section in this report. A copy of FlightSafety's
response is included as an Appendix to this report.

FlightSafety is a proprietary school, and its main campus is in Vero
Beach, Florida. The school received initial approval to participate in
the Title IV, Student Financial Assistance programs on November 25,
1968. The Accrediting Commission of Career Schools and Colleges of
Technology (Accrediting Agency) accredited FlightSafety. The Florida
Board of Independent Postsecondary Vocational, Trade & Business Schools
(State Agency) and the Federal Aviation Administration (FAA) licensed
the school. FlightSafety's current program participation agreement
expired on March 31, 2003. The institution applied for recertification
and is currently on a month-to-month approval, and recertification is
pending.

FlightSafety offers flight-training programs that range in length from
22.5 to 533 clock hours. Its longest clock-hour program is the
Multi-Engine Private and Commercial Pilot Certification program (533
clock hours). This program is for students who have no previous flight
experience. FlightSafety also offers a program in which a student can
obtain a Multi-Engine Commercial Pilot Certification (399 clock hours);
however, the program is not in the institution's catalog. A student must
be a licensed private pilot to enroll in this program. FlightSafety
offers additional shorter programs, ranging in length from 22.5 to 115
clock hours that students can choose to "add on" to one of the longer
programs. These add-on programs include Single-Engine and Flight
Instructor Certifications. Students are allowed to choose one program or
a combination of programs, depending on the student's flight-training
needs. Cost of attendance for each of these individual programs ranges
from \$3,567 to \$47,466. None of these programs are approved or
recognized by the Department as eligible.

From July 1, 1999, through June 30, 2002, FlightSafety disbursed over
\$5.6 million in Federal Family Education Loan (FFEL) Program loans,
including \$5,009,713 in PLUS loans, \$284,833 in Stafford Loans
(Subsidized), and \$371,979 in Unsubsidized Stafford Loans
(Unsubsidized). In the 2000-01 award year, FlightSafety disbursed PLUS
loans to 74 students, with an average loan disbursement of \$32,658.

FlightSafety's controls were adequate to ensure PLUS loan borrowers met
the Title IV citizenship requirements. However, the school disbursed
Title IV aid to students enrolled in ineligible programs. We concluded
that FlightSafety did not offer the program approved by the Department
for Title IV eligibility. The Department approved the program based on
inaccurate information that FlightSafety provided in its Application for
Approval to Participate in the Federal Student Financial Aid Programs
(Application).

Specifically, FlightSafety's February 1999 application for
recertification stated that it offered one 785-clock-hour Aircraft Pilot
and Navigator (Professional) program. It did not offer a 785-clock-hour
program. Instead, it offered several shorter flight-training programs
ranging from 22.5 to 533 clock hours. The Department relied on the
inaccurate information when it signed the program participation
agreement and issued the school an Eligibility and Certification
Approval Report (ECAR) that listed the 785-clock-hour program as the
only approved program at the school. As a result, FlightSafety disbursed
over \$5.6 million in award years 1999-00 through 2001-02 to students
enrolled in these unapproved and ineligible flight-training programs.

**Title IV Program Eligibility Requirements**

Under 34 C.F.R. Part 600, Subpart B, the Department must certify a
school before the school can participate in Title IV programs. The
certification identifies the school's eligible locations and programs.
The Department extends eligibility to qualified programs identified in a
school's application. After being initially certified by the Department,
schools must apply for re-certification at intervals of no greater than
six years. To apply for initial participation and re-certification, a
school must submit an Application to the Department. The school's
Application must identify the programs offered, and the school must
submit proof that the programs have been approved by the school's
accrediting agency, state-licensing agency, and in the case of flight
schools, the FAA. The Department relies on the information provided by
the school on its Application and issues an ECAR listing the programs
approved for Title IV eligibility.

Under 34 C.F.R. § 600.40(c)(1)---

> If the Secretary designates an institution or any of its educational
> programs or locations as eligible on the basis of inaccurate
> information or documentation, the Secretary's designation is void from
> the date the Secretary made the designation, and the institution or
> program or location, as applicable, never qualified as eligible.

Further, 34 C.F.R. § 668.8 (d) provides criteria for program length.
Each Title IV program must be at least 300 clock hours in order to
receive FFEL and William D. Ford Federal Direct Loan (Direct Loan)
funds. For programs that are between 300 and 600 clock hours in length,
in addition to other requirements, the institution must substantiate
that the programs meet the 70 percent completion and 70 percent
placement rate "by having the certified public accountant who prepares
its audit report . . . report on the institution's calculation based on
performing an attestation engagement . . . ." 34 C.F.R. § 668.8(e)(2).
The required attestation has not been provided by FlightSafety's auditor
for any of its programs.

######## Application Contained Inaccurate Data

FlightSafety's February 1999 Application to the Department contained
inaccurate information about the programs offered by the school. The
school reported in its Application that it offered a 785-clock-hour
program, and the Department approved the school's and a program's
eligibility based on the information in that application. However, none
of the documentation we reviewed during our visit to the school
mentioned the 785-clock-hour program. Licensing certifications from the
school's accrediting agency, state-licensing agency, and the FAA, as
well as the school's catalog, did not mention the 785-clock-hour
program.[^1] These agencies approved the shorter flight-training
programs offered by the school. FlightSafety did not obtain approval
from the Department for the numerous shorter flight-training programs,
and it did not substantiate the required placement and completion rates.

Further, students did not sign an enrollment agreement for the
785-clock-hour program, but students did sign enrollment agreements for
each of the shorter flight training programs. Per FAA requirements,
students can only enroll in one program at a time and they must complete
each program before they can sign the next enrollment agreement.

FlightSafety's Administrative Manager stated that the 785-clock-hour
program is not one program, but a cluster of programs that range in
length from 22.5 to 533 clock hours. Students are permitted to enroll in
one or a combination of several of these programs for a maximum of 785
clock hours. FlightSafety's Administrative Manager also stated that a
new student with no previous flight training generally enrolls in the
533-clock-hour program, and a student who already has a private pilot
license generally enrolls in the 399-clock-hour program. Students can
choose to enroll in additional add-on programs ranging in length from
22.5 to 115 clock hours.

None of our 30 sample students was enrolled in the 785-clock-hour
program approved by the Department for Title IV eligibility. We reviewed
the student files for 30 of the 74 PLUS loan recipients for award year
2000-01, and found that most were enrolled in a combination of the
shorter flight training programs that the school offered. However, none
of the 30 was enrolled in a combination of courses that equaled 785
clock hours. Twenty-one of the 30 sampled students, were enrolled in one
or a combination of flight-training programs that totaled between 300
and 600 clock hours, and they received as much as \$67,825 in PLUS loan
funds. Seven students were enrolled in courses with a combined total
over 600 clock hours with the largest enrollment being 749 clock hours.
The remaining two students were enrolled in courses with a combined
total of less than 200 clock hours, including one student enrolled in
only a 122.5-clock-hour program, an add-on program developed specially
to meet his training needs. FlightSafety determined that this student
was eligible to receive Title IV aid and awarded \$25,972 of PLUS loans
to him.

**Title IV Participation Void**

Because FlightSafety clustered several of its flight-training programs
and inaccurately identified the cluster as one 785-clock-hour program on
its Application, the Department's designation of FlightSafety's
eligibility is void, under 34 C.F.R. § 600.40(c)(1), as of March 24,
1999, the date that the latest designation was made. Inaccurately
reporting the 785-clock-hour program on its Application resulted in
FlightSafety's being ineligible to disburse any Title IV aid.

For the purpose of our audit, we are questioning the Title IV aid
disbursed for students at FlightSafety on and after March 24, 1999, the
date that the latest designation was made. Based on the Department's
National Student Loan Data System (NSLDS), FlightSafety received a total
of \$5,666,525, net of refunds, in PLUS, Subsidized, and Unsubsidized
FFEL Loan funds for award years 1999-00, 2000-01, and 2001-02.

We recommend that the Chief Operating Officer for Federal Student Aid---

1\. Verify that Title IV recipients are enrolled in the 785-clock-hour
program and not the shorter, ineligible flight programs offered by
FlightSafety prior to recertifying the school's application.

2\. Require FlightSafety to repay to the lenders PLUS loan funds of
\$5,009,713 and Subsidized and Unsubsidized FFEL loan funds of \$656,812
for award years 1999-00, 2000-01, and

> 2001-02, plus applicable interest.

3\. Calculate and assess a liability for all Title IV funds disbursed
for students at FlightSafety from March 24, 1999, through June 30, 1999,
and after June 30, 2002, plus applicable interest.

####### 

After we concluded our audit work at FlightSafety in September 2002,
FlightSafety requested approval for the 785-clock-hour program in an
October 2, 2002, letter to the accrediting agency stating that the
school was restructuring its programs. The Institutional Development
Manager at the accrediting agency told us that she did not perform a
site visit to the school prior to approving the program on October 15,
2002. Her decision was based solely on the additional documentation
provided by the school. We determined that the 785-clock-hour program
did not exist at the time of our audit, and the accrediting agency's
subsequent approval of the program does not change our audit finding or
recommendations.

FlightSafety did not concur with our finding and recommendations. A copy
of the letter from FlightSafety is included as an Appendix to this
report.

FlightSafety stated that it reported to the Department the
785-clock-hour program and itemized the five courses that make up the
program on eight applications submitted from 1966 to 2001, the
Department approved each of the applications, and the Department
performed seven compliance audits during this same timeframe. Flight
Safety also stated that it submitted a re-certification application in
2002 and received a site visit from the Department that same year that
was completed satisfactorily.

FlightSafety stated, "we respectfully object to the allegation that
FlightSafety Application contains inaccurate data." It also stated that
our audit's statement "is based upon a review of each course separately
and not the Program in the aggregate." FlightSafety stated, "In order to
comply with FAA and ACCSCT \[Accrediting Commission of Career Schools
and Colleges of Technology\] requirements, FlightSafety has itemized
each portion of the Program, which should not lead to the result of
having each course viewed as an independent program, particularly since
no student could secure employment having completed only one of the five
courses."

However, FlightSafety acknowledged in its response that our audit
"correctly notes that FlightSafety's catalog does not describe one
program that consists of 785 hours." FlightSafety included with its
response a revised enrollment agreement that would require students to
enroll in all five courses contained within the 785-clock-hour program.

We have not changed our finding or recommendations. Though
FlightSafety's response cites its previous applications, program
reviews, and compliance with FAA and accrediting agency requirements,
the information it provides does not contradict our finding that
FlightSafety's 785-clock-hour flight training program was not an
eligible, approved program under the requirements for participation in
Title IV programs.

FlightSafety's revised enrollment agreement may help to ensure that its
flight-training program is an eligible program, if implemented. However,
this revision appears to confirm our finding, by indicating that
students did not agree to enroll in the entire program on prior
enrollment agreements. FlightSafety's response also confirms our finding
by verifying that the 785-clock-hour program was not listed in its
catalog.

In addition, FlightSafety did not provide any support for its statement
that it reported to the Department, in eight applications between 1966
and 2001, that the 785-clock-hour program was made up of five courses.
We reviewed two applications, dated February 1999 and November 2002,
that FlightSafety submitted to the Department (neither of these
applications was included in the eight applications mentioned) and found
that FlightSafety had not itemized the five courses. If FlightSafety had
historically provided an itemized listing of the five courses on its
applications to the Department, these two current applications should
also contain that itemized list.

We acknowledge that flight schools have an additional requirement of
complying with FAA requirements. However, FlightSafety must also comply
with Title IV requirements, which allow disbursements of Title IV aid
only to students enrolled in eligible programs approved by the
Department. FlightSafety did not fulfill this responsibility when it
reported to the Department that it offered one 785-clock-hour program,
but in reality, permitted students to enroll in one or a combination of
several programs that did not equal 785 clock hours. In fact, as we
state in Audit Results, not only did the combination of programs offered
not equal 785 clock hours, none of our 30 sample students was enrolled
in this 785-clock-hour program, and one student received Title IV aid in
2000-01 for enrollment in a 122.5 clock hour program, which did not even
meet the minimum of 300 hours required to receive Title IV aid.

Our initial objective was to determine if FlightSafety had adequate
controls to ensure PLUS borrowers met the Title IV citizenship
requirements. During the course of the audit, we expanded our objective
to also determine if Title IV aid was disbursed to students enrolled in
eligible programs. To achieve our objectives, we---

-   Reviewed the citizenship and program eligibility requirements
    contained in the HEA and regulations.

-   Reviewed FlightSafety\'s 2000 compliance and financial statement
    audit report and its 2001 compliance audit report.

-   Reviewed guidance on the citizenship requirements that the
    Department has provided to schools in the *Federal Student Aid
    Handbook* and in *A Guide to 2000-2001 SARs and ISIRs*.

-   Interviewed the school's Financial Aid Administrator to determine
    the school's policies and procedures for documenting and determining
    the citizenship status of parents and students who received PLUS
    loans.

-   Reviewed the school's written policies relating to verifying
    citizenship status.

-   Interviewed the school's Administrative Manager regarding the Title
    IV eligibility of flight training programs offered by the school.

-   Reviewed licensing certifications from the accrediting agency, the
    state agency, and the FAA to determine if a 785-clock-hour Aircraft
    Pilot and Navigator (Professional) program was approved by other
    agencies.

-   Reviewed the school's 2002 catalog to determine what programs were
    offered.

-   Reviewed the school's Application (revised 11/2002), 1999 ECAR, and
    1999 Program Participation Agreement to determine if offered
    programs were approved for Title IV eligibility.

We randomly selected and reviewed files for 30 PLUS loan recipients from
a universe of 74 total PLUS loan student recipients at FlightSafety
during the 2000-01 award year. To identify our universe, we extracted
data from the Department's Central Processing System (CPS) and NSLDS and
used the data to identify all 2000-01 PLUS loan student recipients and
all citizenship-related comments contained on these recipients' award
year 2000-01 SARs and ISIRs. During our file reviews, we determined if
the school (1) appropriately documented the citizenship status and, if
applicable, resolved any citizenship-related comments or questions, and
(2) disbursed Title IV aid to students enrolled in eligible programs.

We relied on computer-processed data obtained from the CPS and NSLDS for
background information and to select a random sample of PLUS loan
recipients for review. We performed limited tests of the data to verify
reliability by comparing the data to information obtained from
FlightSafety officials. Based on the results of these tests, we
concluded that the computerized data was sufficiently reliable to
formulate conclusions associated with the objectives of our audit.

Our review of Title IV citizenship requirements covered the period July
1, 2000, through June 30, 2001. We expanded our scope for the review of
Title IV program eligibility requirements to cover July 1, 1998, through
June 30, 2002. Audit work was performed at FlightSafety, Vero Beach,
Florida, during September 2002. We discussed our results with
FlightSafety officials on September 27, 2002; we held an exit conference
with FlightSafety officials on February 14, 2003; and we contacted
FlightSafety officials on June 9, 2003, to discuss subsequent revisions
to our proposed draft report. Our audit was conducted in accordance with
generally accepted government auditing standards appropriate to the
scope described.

# 

As part of our review, we assessed the system of management controls,
policies, procedures, and practices applicable to FlightSafety's
administration of PLUS loans. Our assessment was performed to determine
whether FlightSafety had management controls established to ensure PLUS
borrowers met the Title IV citizenship requirements.

Because of inherent limitations, a study and evaluation made for the
limited purposes described above would not necessarily disclose all
material weaknesses in management controls. FlightSafety's management
control structure was sufficient to ensure PLUS loan borrowers met the
required Title IV citizenship requirements. However, while reviewing
student records to test PLUS citizenship requirements, we identified
discrepancies in the Title IV eligibility of the school's Aircraft Pilot
and Navigator (Professional) program. These discrepancies are discussed
in the AUDIT RESULTS section of this report.

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 U.S. Department of Education official, who
will consider them before taking final Departmental action on this
audit:

Ms. Theresa S. Shaw, Chief Operating Officer

Federal Student Aid

U.S. Department of Education

Union Center Plaza, Rm. 112G1

> 830 First Street, NE

Washington, DC 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 greatly 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.

If you have any questions or wish to discuss the contents of this
report, please contact me, at 214-880-3031. Please refer to the control
number in all correspondence related to this report.

> Sincerely,
>
> Sherri L. Demmel /s/
>
> Regional Inspector General for Audit
>
> Enclosure

[^1]: The state licensing agency issued a March 25, 2002, letter
    approving the 785-clock-hour program; however, the program was not
    added to the school's state license until October 2002 in response
    to a request by FlightSafety officials.