May 2, 2006

> Control Number
>
> [ED-OIG/A09G00]{.underline}[01]{.underline}

Rick Treviño, School Director

MCed Career College

2002 N. Gateway Blvd.

Fresno, California 93727

Dear Mr. Treviño:

This **Final Audit Report**, entitled *MCed Career College's
Administration of Student Financial Assistance Programs Under Title IV
of the Higher Education Act,* presents the results of our audit. The
purpose of the audit was to determine whether the MCed Career College's
administration of the Title IV programs was in compliance with selected
requirements of the Higher Education Act of 1965, as amended (HEA), and
applicable program regulations governing institutional eligibility,
program eligibility, student eligibility, award calculations,
disbursements, and return of Title IV funds. Our review covered the
period July 1, 2003 through June 30, 2005.

BACKGROUND

MCed Career College (MCed) is a for-profit, non-degree granting
institution that began offering instruction in October 1989 and began
participating in the Title IV programs in May 1995. MCed was
incorporated in the State of California on October 1, 1997. The School
Director (Director) is the sole stockholder of the corporation. MCed is
accredited by the Accrediting Commission of Career Schools and Colleges
of Technology, operates one campus located in Fresno, California, and
has an enrollment of about 200 students.

MCed offers vocational training programs in business, technical,
medical, and legal disciplines. Eleven of the fifteen programs offered
in its 2005 catalog are approved for the Title IV programs. The
vocational training programs are offered in a non-standard term academic
calendar and measured in quarter credit hours. The eleven programs range
from 32 to 40 quarter credit hours in length. Students enroll in
programs that start once a month. The programs consist of a series of
three to four week modules, which students typically take one at a time.

MCed participates in the following HEA, Title IV programs: Federal Pell
Grant Program, Federal Supplemental Educational Opportunity Grant
Program, and the Federal Direct Loan Program. During the two-year period
from July 1, 2003 through June 30, 2005, MCed awarded about \$2.9
million in Title IV funds to about 400 students.

AUDIT RESULTS

We concluded that MCed met Title IV requirements governing institutional
and program eligibility. However, we found that MCed did not
consistently comply with Title IV requirements governing student
eligibility, award calculations, disbursements, and the return of Title
IV funds. MCed also did not maintain financial records that readily
provided the information required to calculate the Title IV revenue
percentage for the 90-10 Rule. To continue to participate in the Title
IV programs, an institution must demonstrate that it is capable of
adequately administering the programs under 34 C.F.R. § 668.16,
standards of administrative capability. We concluded, based on the
results of our review, that MCed did not fully meet these standards.

MCed concurred with our finding and described the corrective actions
planned to address our recommendations. MCed's comments are summarized
at the end of the finding and the full text of the comments is included
as an attachment to the report.

FINDING -- MCed Did Not Fully Meet Aspects of the Administrative
Capability Standards for the Title IV Programs

To continue participation in a Title IV program, 34 C.F.R. § 668.16
requires an institution to demonstrate that it "is capable of adequately
administering that program under each of the standards established in
this section." The standards include, among other requirements, that an
institution---

> Administers the Title IV, HEA programs in accordance with all
> statutory provisions of or applicable to Title IV of the HEA, \[and\]
> all applicable regulatory provisions prescribed under that statutory
> authority\.... \[34 C.F.R. § 668.16(a)\]
>
> Administers the Title IV, HEA programs with adequate checks and
> balances in its system of internal controls\.... \[34 C.F.R. §
> 668.16(c)(1)\]
>
> Establishes and maintains records required under this part and
> individual Title IV, HEA program regulations\.... \[34 C.F.R. §
> 668.16(d)\]
>
> Shows no evidence of significant problems that affect, as determined
> by the Secretary, the institution's ability to administer a Title IV,
> HEA program\.... \[34 C.F.R. § 668.16(j)\]
>
> Does not otherwise appear to lack the ability to administer the Title
> IV, HEA programs competently\.... \[34 C.F.R. § 668.16(n)\]

MCed's Director, Controller, and Financial Aid Administrator with one
part-time assistant perform the various activities related to the
administration of the Title IV programs and MCed had written policies
and procedures covering those activities. MCed also had well-organized
admission, financial aid, and academic files and records. However, we
found that MCed did not have adequate internal control procedures in
place to ensure proper verification documentation, award calculations,
timing of Title IV disbursements, calculation of unearned Title IV funds
for withdrawn students, and the return of Title IV funds. Also, its
financial records need to provide the required information to calculate
the Title IV revenue percentage for the 90-10 Rule. Thus, MCed did not
fully meet the above listed administrative capability standards for the
Title IV programs.

**Internal Control over Verification Documentation,**

**Title IV Awards, and Disbursements Needs Improvement**

MCed did not have adequate controls in place to ensure that verification
of student eligibility data was properly documented, Title IV award
calculations were accurate, and the timing of Title IV disbursements was
appropriate. We reviewed student records for 30 students randomly
selected from the 408 students who were awarded Title IV funds during
the audit period. For 13 of the 30 sampled students (43 percent of the
sampled students), we found that MCed made an error in the
administration of Title IV programs.

+-------------------------+-------------+-------------+--------------+
| ###### Errors I         |             |             |              |
| dentified in the Random |             |             |              |
|  Sample of 30 Students  |             |             |              |
+-------------------------+-------------+-------------+--------------+
| ###### Type of Error    | **Sampled   | **Sampled   | **Title IV   |
|                         | Students    | Students    | Funds        |
|                         | Requiring   | With Error  | to           |
|                         | the         | for the     |  Be Returned |
|                         | Specific    | Activity**  | By MCed**    |
|                         | Activity**  |             | (a)          |
+-------------------------+-------------+-------------+--------------+
| Lack of verification    | 17          | 1           | \-\--        |
| documentation           |             |             |              |
+-------------------------+-------------+-------------+--------------+
| Incorrect Title IV      | 30          | 5           | \$2,940      |
| award calculations      |             |             |              |
+-------------------------+-------------+-------------+--------------+
| Early Title IV          | 30          | 7           | \-\--        |
| disbursements           |             |             |              |
+-------------------------+-------------+-------------+--------------+
| Totals                  |             | 13          | \$2,940      |
+-------------------------+-------------+-------------+--------------+
| \(a\) The \$2,940       |             |             |              |
| consists of \$1,810 in  |             |             |              |
| Federal Pell Grant      |             |             |              |
| funds, \$724 in         |             |             |              |
| subsidized Federal      |             |             |              |
| Direct Loan funds, and  |             |             |              |
| \$406 in unsubsidized   |             |             |              |
| Federal Direct Loan     |             |             |              |
| funds.                  |             |             |              |
+-------------------------+-------------+-------------+--------------+

-   [Lack of verification documentation]{.underline}. Seventeen of
    the 30 sampled students were flagged by the Central Processing
    System for verification of information that the student provided on
    the Free Application for Federal Student Aid (FAFSA).[^1] MCed was
    unable to provide evidence that verification was completed for 1 of
    the 17 students. Subsequent to our review, MCed obtained a completed
    verification document and copies of the relevant tax forms from the
    parent. The documents confirmed the information on the student's
    application and the student's eligibility for the awarded Title IV
    funds.

-   [Incorrect Title IV award calculations]{.underline}. MCed
    miscalculated the Title IV awards for 5 of the 30 sampled students.
    The award miscalculations occurred because MCed staff did not
    prorate the annual Title IV awards for five students who were
    enrolled in an educational program (32 quarter credit hours) that
    was less than a full academic year (36 quarter credit hours).[^2]
    For one of the five students, MCed also incorrectly determined the
    annual Pell Award amount for the student's expected family
    contribution (EFC) from the U.S. Department of Education's
    (Department's) Pell Grant Program Schedule of Awards.[^3] As a
    result of the improper calculations, the five students were over
    awarded Title IV funds totaling \$2,940.

-   [Early Title IV disbursements]{.underline}. MCed inappropriately
    disbursed Title IV funds for the second payment period during the
    first payment period for 7 of the 30 sampled students. The
    disbursements occurred early because MCed staff did not accurately
    compute the calendar midpoint between the first and last scheduled
    days of class.[^4] Subsequent to early disbursements, the seven
    students became eligible for Title IV funds.

The Financial Aid Administrator, or the Administrator's assistant,
independently performed tasks related to the award and disbursement of
Title IV funds. MCed had no system of review in place to detect errors,
when they occurred.

**Internal Control Over the Return of Title IV Funds for**

**Withdrawn Students Needs Improvement**

MCed did not have adequate controls in place to ensure that return of
Title IV calculations were performed correctly and that the required
unearned Title IV funds were returned timely and to the proper Title IV
program. The regulations at 34 C.F.R. § 668.22 address the treatment of
Title IV funds when a student withdraws from an institution. These
regulations require the institution to determine the amount of Title IV
grant or loan assistance that the student earned as of the student's
withdrawal date and return the difference between the Title IV funds
disbursed and the amount earned by the student. The institution must
return the unearned Title IV funds to the Title IV programs in the
program order and timeframe specified in the regulations.

We reviewed records for 19 students (10 randomly and 9 judgmentally
selected) from the 64 students that MCed identified as having withdrawn
from school during our audit period. We found that MCed made one or more
errors in the return of Title IV funds for 9 of the 19 sampled students.

+-----------------------------------+-------------+----------+---------+
| **Errors Identified in the Sample |             |          |         |
| of 19 Withdrawn Students**        |             |          |         |
+-----------------------------------+-------------+----------+---------+
| **Type of Error**                 | **Sampled   | **Ad     |         |
|                                   | Withdrawn   | ditional |         |
|                                   | Students    | Title IV |         |
|                                   | With Cited  | Funds to |         |
|                                   | Error(s)**  | Be       |         |
|                                   |             | Re       |         |
|                                   |             | turned** |         |
|                                   |             | (a)      |         |
+-----------------------------------+-------------+----------+---------+
|                                   |             | **MCed   | **      |
|                                   |             | Needs to | Student |
|                                   |             | Return** | Needs   |
|                                   |             |          | to      |
|                                   |             |          | R       |
|                                   |             |          | eturn** |
+-----------------------------------+-------------+----------+---------+
| Incorrect Return of Title IV      | 4           | \(b\)    | \(b\)   |
| calculations                      |             |          |         |
+-----------------------------------+-------------+----------+---------+
| Title IV funds not returned or    | 6           | \$5,245  | \$527   |
| not returned within required      |             |          |         |
| timeframe                         |             |          |         |
+-----------------------------------+-------------+----------+---------+
| Funds returned to incorrect Title | 1           | \$1,294  | \-\--   |
| IV program                        |             |          |         |
+-----------------------------------+-------------+----------+---------+
| Total                             | 9 (c)       | \$6,539  | \$527   |
+-----------------------------------+-------------+----------+---------+
| (a) The \$6,539 to be returned by |             |          |         |
|     MCed consists of \$2,689 of   |             |          |         |
|     unsubsidized Direct Loan      |             |          |         |
|     funds, \$1,861 of subsidized  |             |          |         |
|     Direct Loan funds and \$1,989 |             |          |         |
|     of Pell Grant Funds. The      |             |          |         |
|     amount to be returned by the  |             |          |         |
|     student consists solely of    |             |          |         |
|     subsidized Direct Loan funds. |             |          |         |
|                                   |             |          |         |
| (b) The corrected calculations    |             |          |         |
|     resulted in either no         |             |          |         |
|     unearned Title IV funds or no |             |          |         |
|     additional Title IV funds to  |             |          |         |
|     be returned by MCed or the    |             |          |         |
|     student.                      |             |          |         |
|                                   |             |          |         |
| (c) MCed made two types of errors |             |          |         |
|     for two of the 9 students     |             |          |         |
|     cited with errors (incorrect  |             |          |         |
|     calculation/funds returned    |             |          |         |
|     late and incorrect            |             |          |         |
|     calculation/funds returned to |             |          |         |
|     incorrect program).           |             |          |         |
+-----------------------------------+-------------+----------+---------+

-   [Incorrect return of Title IV calculations]{.underline}. MCed staff
    improperly used the formula specified for clock hour programs for 4
    of the 19 sampled students when calculating the return of Title IV
    amount.[^5] For these 4 students, MCed staff used the FSA-provided
    form for calculating Return of Title IV amounts for clock hour
    programs rather than the form provided for credit hour programs.
    Prior to May 6, 2003, MCed measured its programs in clock hours.

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-   [Title IV funds not returned or not returned within required
    timeframe]{.underline}. For 6 of the 19 sampled students, MCed did
    not return the Title IV funds (3 students), return the required
    amount (1 student), or return the funds timely (2 students).[^6] For
    three students (two students for whom MCed did not return funds and
    the one student for whom the required amount was not returned), MCed
    staff improperly concluded that the Title IV funds did not need to
    be returned because MCed had provided the Title IV funds to the
    student for living expenses. (The students' tuition had been paid by
    a rehabilitation agency.) Due to an oversight by MCed staff, Title
    IV funds were not returned for the other student and the funds were
    returned 37 days and 22 days late for the two students. Because of
    the unmade and untimely returns, MCed must comply with the reserve
    standards at 34 C.F.R. § 668.173 requiring a letter of credit.

-   [Title IV funds returned to incorrect Title IV program]{.underline}.
    MCed staff returned the Title IV funds to the incorrect program for
    1 of the 19 sampled students. The unearned Title IV funds were
    returned to the student's Federal Pell Grant and the parent's PLUS
    Direct Loan rather than first applying the unearned funds to the
    student's subsidized Direct Loan.[^7] As was the case with the Title
    IV funds not returned, MCed staff had improperly concluded that the
    Title IV funds did not need to be returned to the student's
    subsidized Direct Loan because MCed had provided the full amount
    from the subsidized loan to the student for living expenses.

The Financial Aid Administrator, the Administrator's assistant, and the
Controller independently performed tasks related to the return of Title
IV funds. MCed had no system of review in place to detect the errors,
when they occurred. In addition, MCed staff did not fully understand
aspects of the return of Title IV requirements.

**Financial Records Need to Provide Information**

**Required to Ensure Compliance with the 90-10 Rule**

MCed's Director mistakenly believed that the Title IV percentage for the
90-10 Rule was derived using total revenue rather than only revenue from
educational programs eligible for Title IV funds and an accrual rather
than cash basis of accounting. As a result, MCed improperly calculated
the Title IV revenue percentages reported in its financial statements
for fiscal years 2003 and 2004 and provided us with an incorrect
estimate of its revenue percentage for fiscal year 2005. An additional
result of the mistaken understanding was that MCed did not design its
accounting system to capture Title IV transactions by educational
program or provide the necessary information to determine amounts on the
cash basis.

Section 102(b)(1)(F) of the HEA establishes the institutional
eligibility requirement (referred to as the 90-10 Rule) that a
proprietary institution must have "at least 10 percent of the school's
revenues from sources that are not derived from funds provided under
Title IV, as determined in accordance with regulations prescribed by the
Secretary." The regulation at 34 C.F.R. § 600.5(d) provides the
methodology for calculating the revenue percentage, which specifies that
only revenue derived from students enrolled in eligible programs may be
included in the calculation and that an institution must use the cash
basis of accounting when calculating the revenue percentage.

The regulation at 34 C.F.R. § 668.24(a) mandates an institution to
establish and maintain records documenting its eligibility to
participate in the Title IV programs. The regulation at
34 C.F.R. § 668.24(b)(2) requires an institution to establish and
maintain its "\[f\]inancial records \[in a manner\] that reflects each
HEA, title IV program transaction; and...\[g\]eneral ledger control
accounts and related subsidiary accounts that identify each title IV,
HEA program transaction and separate those transactions from all other
institutional financial activity."

Because we could not readily identify needed amounts from MCed financial
records, we were unable to recalculate the Title IV revenue percentages.
However, from our analysis of available information and using
conservative assumptions, we concluded that MCed did not derive more
than 90 percent of its revenue from the Title IV, HEA programs in fiscal
years 2004 and 2005 and, thus, remained eligible to participate in the
Title IV programs.

**MCed Has Implemented Additional Internal**

**Controls and Plans to Modify Its Accounting System**

During the exit conference, MCed's Director provided a spreadsheet (SFA
Audit Checklist -- Students), which was designed to ensure that
verification documentation is obtained, Title IV awards are properly
calculated, and Title IV disbursements are made at the proper time. The
spreadsheet contains columns for a reviewer to confirm that MCed staff
correctly executed the various actions. MCed provided another
spreadsheet (All SFA Drop Students) for MCed staff to track withdrawn
students, refund calculations, and the return of Title IV funds. The
Director stated that he would review the spreadsheets. The Director also
provided a list of account classifications that he stated have been set
up in MCed's accounting system to separately identify Title IV program
transactions so that information needed for the 90-10 Rule is readily
available. In a letter dated February 3, 2006, MCed provided copies of
the completed spreadsheets to demonstrate that it had implemented the
additional internal controls.

The corrective actions taken and planned should significantly enhance
MCed's internal control over its administration of the Title IV
programs. However, MCed should have staff, who are involved in the
calculation and return of unearned Title IV funds and the review of such
activities, complete the Return of Title IV segments of the FSA COACH
Web-based Training to ensure that staff are knowledgeable of Title IV
requirements.

**Recommendations**

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

1.  Have its independent public accountant, as part of the institution's
    next annual audit, provide an attestation that the described
    internal control procedures and changes in its accounting system
    were fully implemented.

2.  Confirm that the Director, Financial Aid Administrator, and other
    MCed staff, as appropriate, have completed the Return of Title IV
    segments of the FSA COACH Web‑based Training.

3.  Return the \$2,940 improperly awarded due to Title IV award
    calculation errors, the \$6,539 not properly returned to the Title
    IV programs for unearned amounts for withdrawn students, and the
    interest costs incurred by the Federal government on the subsidized
    Direct Loans, to the Federal Pell Grant and Federal Direct Loan
    accounts, as applicable.

4.  Identify all amounts of unearned Title IV funds that have not been
    returned to the appropriate Title IV program for student who
    withdrew from July 1, 2003, through the present and return the funds
    (plus the interest costs incurred by the Federal government on the
    subsidized Direct Loans) to the applicable Title IV programs.

5.  Recalculate all awards made to students from July 1, 2003 to the
    present and return any identified over awards to the applicable
    Title IV programs.

6.  Provide an irrevocable letter of credit as required under 34 C.F.R.
    § 668.173(d).[^8]

##### MCed's Comments

MCed concurred with the finding and recommendations. In its comments on
the draft report, MCed stated that it would complete the recommended
corrective actions and set up a plan with the Department for the return
of the Title IV funds.

OBJECTIVE, SCOPE, AND METHODOLOGY

Our audit objective was to determine if MCed administered the Title IV
programs in compliance with Title IV of the HEA and applicable
regulations. Specifically, we evaluated compliance with selected Title
IV regulations governing institutional eligibility, program eligibility,
student eligibility, award calculations, disbursements, and return of
the Title IV funds. Our audit covered the period July 1, 2003 through
June 30, 2005.

To accomplish our audit objective, we gained an understanding of
pertinent HEA provisions, Federal regulations, and Department guidance.
We reviewed MCed's audited financial statements prepared by its
independent public accountant (IPA) for the years ended June 30, 2003
and 2004 and interviewed MCed's IPA. To evaluate internal controls we
reviewed MCed's written policies and procedures applicable to its
financial aid processes and gained an understanding of the manual and
the electronic processes used to administer the Title IV funds. We
interviewed MCed's School Director, Financial Aid Administrator and her
part-time assistant, and the Controller.

To evaluate institutional and program eligibility, we examined approvals
and correspondence from the school's accrediting agency and state
oversight agency and interviewed officials from the state oversight
agency. We also reviewed accreditation documentation specific to credit
hour and course length calculations. We observed classes while in
session and toured the school campus. To review MCed's compliance with
the 90-10 Rule, we gained an understanding of the calculation performed
by MCed for the fiscal years ended June 30, 2003, 2004 and 2005. We used
alternative procedures to assess whether MCed received less than 90
percent of its revenues from the Title IV programs, because we could not
identify from MCed's accounting system the non-Title IV revenue received
for students enrolled in Title IV eligible programs.

We reviewed academic, financial aid, and accounting files for a random
sample of 30 students to evaluate MCed's compliance with selected
student eligibility requirements (i.e., student's Institutional Student
Information Record (ISIR) contained required eligibility information,
school performed required verifications of ISIR data, student passed
ability-to-benefit test (if required), and student enrolled at least
half-time), award calculation requirements, and selected disbursement
requirements (i.e., students met time requirements for initial
disbursements and completed required coursework for second
disbursement). We selected the 30 students from the universe of
408 students awarded Title IV funds during our audit period. To identify
the student universe, we relied on student data extracted by MCed from
its electronic student database. To assess the completeness of the
extracted data, we compared the data to information on the Department's
National Student Loan Data System. Based on the comparison, we concluded
that the extracted data was sufficiently reliable for use in selecting
the sample.

To confirm that MCed disbursed Title IV funds by the end of the third
business day after receipt of the funds in the institution's bank
accounts, we reviewed drawdown information and information in bank
statements (including cancelled checks) and student accounts for five
drawdowns of Title IV funds. We reviewed one Federal Pell Grant and one
Federal Direct Loan drawdown from the most current month (June 2005),
one Federal Pell Grant and one Federal Supplemental Educational
Opportunity Grant drawdown from earlier in that fiscal year
(February 2005 and January 2005, respectively), and one Federal Direct
Loan drawdown from the first fiscal year in our audit period (February
2004).

To evaluate the compliance with return of Title IV requirements, we
reviewed files for a sample of 19 withdrawn students. Ten of the sampled
students were randomly selected from the list of 44 students that MCed
identified from its electronic student database as students who withdrew
from the institution during our audit period. To assess the completeness
of the list, we traced the 9 withdrawn students identified in our sample
of 30 students (sample used to review student eligibility, award
calculations and disbursements) to the MCed-provided list of withdrawn
students. However, we found that 4 of the withdrawn students in our
sample of 30 students were not included in the MCed-provided list
because MCed had unintentionally used an incorrect query to identify
withdrawn students from its database. MCed used a corrected query to
provide a revised list that included 64 students who withdrew during our
audit period. Since the original list of 44 students used to select the
random sample was not complete, we included the 9 withdrawn students
from our sample of 30 students in our review for compliance with return
of Title IV requirements.

We performed our fieldwork at MCed's campus in Fresno, California. We
held an exit briefing with MCed officials on January 19, 2006. We
conducted the audit in accordance with generally accepted government
auditing standards appropriate to the scope of the review, as discussed
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 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 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, Mail Stop 5132
>
> 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 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: MCed's Comments on the Draft Report

![](media/image3.wmf){width="4.0in" height="1.125in"}**2002 N. Gateway
Blvd.**

**Fresno, CA 93727-1620**

**Tel. (559) 456-0623**

**Fax (559) 456-0188**

[**rtrevino@mced.com**](mailto:RTREVINO@MCED.COM)

[**www.mced.com**](http://WWW.MCED.COM/)

April 13, 2006

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:

MCed Career College concurs will all the finding identified by the audit
team.

The following are the responses to the recommendations made:

**Recommendation 1.1** MCed Career College concurs with the
recommendation. T.J. Williams & Company, CPA's will conduct a review and
provide an attestation of the internal control procedures and changes in
the accounting system that has been implemented. Field work will begin
on April 12, 2006 with a targeted completion date of April 30, 2006.

**Recommendation 1.2** MCed Career College concurs with the
recommendation. The school director, financial aid administrator and the
accounting officer are in the process of completing Module 8 (School
Responsibilities: Enrolled and Former Students), of the FSA Coach
Web-Based Training. Certificates of Completion will be submitted to
demonstrate the completion of Module 8. Targeted completion date is
April 21, 2006.

**Recommendation 1.3** MCed Career College concurs with the
recommendation. MCed will return \$2,940 that was improperly awarded due
to Title IV award calculation errors and also return \$6,539 of unearned
amounts for withdrawn students plus interest costs incurred.

MCed Career College would like to set-up a payment plan with the
Department of Education to return the monies. Targeted completion date:
To be Determined by the U.S. Department of Education & MCed Career
College

**Recommendation 1.4** MCed Career College concurs with the
recommendation. MCed will identify all amounts of unearned Title IV
funds that have not been returned for students who withdrew from July 1,
2003 through present. Targeted completion date is April 21, 2006.

**MCed Career College**

Page 2 of 2

Once MCed Career College identifies the amount of unearned Title IV
funds for students who withdrew from July 1, 2003 to present, MCed
Career College would request a payment plan with the Department of
Education to return the monies identified plus interest. Targeted
completion date of returning the funds: To be Determined by the U.S.
Department of Education & MCed Career College.

**Recommendation 1.5** MCed Career College concurs with the
recommendation. MCed will recalculate and identify all awards made to
students from July 1, 2003 to present who were in transition from 32 to
34 and 36 quarter credit hour programs. Targeted completion date is
April 30, 2006.

MCed Career College would like to set-up a payment plan with the
Department of Education to return the monies identified plus interest.
Targeted completion date: To be Determined by the U.S. Department of
Education & MCed Career College.

**Recommendation 1.6** MCed Career College concurs with the
recommendation. MCed Career College will provide an irrevocable letter
of credit as required. MCed will first determine total refunds required
to be returned for 2004-2005 (most recent completed fiscal year).

MCed Career College will work with the U.S. Department of Education to
determine a due date for the letter of credit.

Sincerely,

> /s/

Rick Trevino

School Director

[^1]:
    #####  34 C.F.R. § 668.54(a)(2) states an institution must require each applicant whose application is selected for verification to verify all of the applicable items specified in §668.56, except that no institution is required to verify the applications of more than 30 percent of its total number of applicants in an award year for Federal financial aid. 

[^2]: Federal Pell Grant Program regulations at 34 C.F.R.§ 690.63(d)(1)
    and Federal Direct Loan Program regulations at 34 C.F.R. §
    685.203(a) and (b) require institutions offering nonstandard term
    programs to prorate a student's awards/loans by dividing the credit
    hours a student is enrolled for the academic year by the credit
    hours required for full‑time enrollment in the academic year.

[^3]: The Department's Pell Grant Schedule of Awards shows the maximum
    annual awards for students based on the student's EFC. The EFC is
    the amount a student and the student's family can be expected to
    contribute to the cost of the student's education for the academic
    year.

[^4]: 34 C.F.R. § 668.164(b) requires institutions to disburse Title IV
    funds on a payment period basis. Federal Pell Grant Program
    regulations at 34 C.F.R. § 690.76 allow the institution to make
    disbursements within the payment period at such times and in such
    installments as the institution determines will best meet the
    student's needs. Federal Direct Loan Program regulation at 34 C.F.R.
    § 685.301(b)(3) requires the institution to disburse loan proceeds
    at least once in each payment period and the institution may not
    make the second disbursement until the calendar midpoint between the
    first and last scheduled days of class of the loan period.

[^5]: For purposes of calculating the amount of Title IV funds earned by
    the student, 34 C.F.R § 668.22(f) provides different formulas for
    calculating the percentage of the payment period completed for
    programs measured in credit hours versus clock hours.

[^6]: 34 C.F.R § 668.22(j)(1) specifies that an institution must return
    the Title IV funds as soon as possible but no later than 30 days
    after the date of the institution's determination that the student
    withdrew.

[^7]: 34 C.F.R. § 668.22(i)(1) and (2) require the unearned funds to be
    returned in the following order for the Title IV programs
    administered by MCed: unsubsidized Federal Direct Loans, subsidized
    Federal Direct Loans, Federal Direct PLUS Loans, Federal Pell
    Grants, and Federal Supplemental Educational Opportunity Grants.

[^8]: 34 C.F.R. § 668.173(c)(1)(i) requires an institution to submit an
    irrevocable letter of credit when an audit conducted by the Office
    of Inspector General finds that an institution did not return
    unearned Title IV funds within the required timeframe for 5 percent
    or more of sampled students. MCed did not return unearned Title IV
    funds within the required 30-day timeframe for 31.6 percent (6 of
    19) of sampled students. 34 C.F.R. § 668.173(d)(2) states that the
    amount of the required letter of credit is 25 percent of the total
    amount of unearned Title IV funds that the institution was required
    to return during the institution's most recently completed fiscal
    year.