##### Control Number ED-OIG/A04-B0015

# Dr. Johnnetta B. Cole, President 

# Bennett College

# 900 East Washington Street

# Greensboro, North Carolina 27401

Dear Dr. Cole:

This **Final Audit Report** (Control Number ED-OIG/A04-B0015) presents
the results of our audit of Bennett College's (College) compliance with
cash management and refund procedures for Department of Education (ED)
funds for the period July 1, 1997, through June 30, 2000. Our objectives
were to determine whether the College was in compliance with Title III
and Title IV cash management regulations, the standard of conduct for a
fiduciary in the administration of Title IV, and Title IV refund
requirements.

In its written response to the draft report, a copy of which is included
as an attachment, the College concurred with the audit findings.
However, the College did not concur with Recommendation No. 1.3 relating
to the repayment of \$634,000 in excess Federal Work Study (FWS) program
funds. The College's response to the draft report and our comments to
the response are summarized in the Findings sections of the report.

**AUDIT RESULTS**

The College did not comply with the Title IV cash management
requirements and breached its fiduciary responsibility when it drew down
\$5,686,362 of Title IV Direct Loan funds and \$679,238 of FWS funds in
excess of its needs, did not promptly return the excess funds, and
failed to deposit \$146,712 of interest earned on excess funds into the
Federal account. The excess Direct Loan funds were used to open a
\$5 million money market account. These excess Direct Loan funds were
eventually returned to ED, but the interest earned on the money market
account was not returned. The majority of the excess FWS funds
(\$634,000) remained outstanding as of the end of the audit period.

Further, the College was not in compliance with the ED General
Administrative Regulations (EDGAR) when it drew down \$456,000 of
Title III and \$63,311 of Minority Science Improvement Program (MISIP)
grant funds in excess of its immediate needs and did not promptly return
the excess funds.

In addition, the College was not in compliance with the Title IV
requirement to pay refunds timely when it made such payments 23 to 65
days late.

**FINDING NO. 1 -- Bennett College Did Not Adhere to ED Title IV
Regulations for Cash Management and the Standard of Conduct for a
Fiduciary in the Administration of the Title IV Programs**

In 1998, the College did not comply with the Title IV cash management
requirements when it drew down \$5,743,800 in the William D. Ford
Federal Direct Loan (Direct Loan) program and \$686,100 in Federal Work
Study (FWS) program funds. The drawdowns were over \$6.3 million in
excess of needs and the excess funds were not promptly returned to the
Department. The College also breached its Title IV fiduciary
responsibility when it opened a separate interest bearing account with
\$5 million of the excess Direct Loan funds. The \$146,712 interest
earned was not deposited into the Federal account as required.

The Title IV cash management regulations are intended to "\[p\]romote
sound cash management of \[T\]itle IV, HEA program funds \[and\]
\[m\]inimize the financing costs to the Federal Government . . . ."
34 C.F.R. § 668.161(a)(i) and (ii). The regulations further provide:

> The Secretary considers excess cash to be any amount of \[T\]itle IV,
> HEA program funds, that an institution does not disburse to students
> or parents by the end of the third business day following the date the
> institution received those funds from the Secretary.
> \[34 C.F.R. § 668.166(a)(1)\]
>
> \[F\]unds received by an institution under the \[T\]itle IV, HEA
> programs are held in trust for the intended student beneficiaries and
> the Secretary. . . . The institution, as a trustee of Federal funds,
> may not use or hypothecate (i.e. use as collateral) \[T\]itle IV, HEA
> program funds for any other purpose. \[34 C.F.R. § 668.161(b)\]
>
> If an institution maintains Direct Loan . . . program funds in an
> interest‑bearing or investment account, the institution may keep the
> initial \$250 it earns on those funds during an award year. By June 30
> of that award year, the institution must remit to the Secretary any
> earnings over \$250. \[34 C.F.R § 668.163(c)(4)\]
>
> An institution must maintain accounting and internal control systems
> that . . . (ii) Identify the earnings on \[T\]itle IV, HEA program
> funds maintained in the institution's bank or investment account . . .
> . \[34 C.F.R § 668.163(d)(1)\]
>
> A participating institution . . . acts in the nature of a fiduciary in
> the administration of the Title IV, HEA programs. To participate in
> any Title IV, HEA program, the institution . . . must at all times act
> with the competency and integrity necessary to qualify as a fiduciary.
> \[34 C.F.R. § 668.82(a)\]
>
> The failure of a participating institution . . . to administer a
> Title IV, HEA program, or to account for the funds that the
> institution . . . receives under that program, in accordance with the
> highest standard of care and diligence required of a fiduciary,
> constitutes grounds for (1) an emergency action against the
> institution, a fine on the institution, or the limitation, suspension,
> or termination of the institution's participation in that program . .
> . . \[34 C.F.R. § 668.82(c)\]

In January 1998, the College's Business Office drew down \$5,743,800 in
Direct Loan funds and \$686,100 in FWS funds. The College's immediate
needs at that time were \$57,438 in Direct Loan and \$6,862 in FWS
funds. As a result, the College drew down excess Direct Loan and FWS
funds totaling \$6,365,600 (\$5,686,362 Direct Loan and \$679,238 FWS).
The College did not immediately return the excess funds.

In February 1998, a former College President opened a money market
account with \$5 million of the excess Direct Loan funds. From February
1998 through November 1998, the College earned and improperly retained
interest totaling \$146,712 on the Direct Loan funds it deposited into
the money market account. The College did not deposit the interest
earned into the Federal account as required by ED regulations for
maintaining and accounting for funds.

Between October 1998 and August 1999, the College made 10 payments to
the ED Loan Origination Center repaying \$5,332,903 of the excess Direct
Loan funds. As of June 30, 2000 (the end of the audit period), the
College had a \$16,959 cash balance in its Direct Loan account. As of
August 17, 2001, the College had a zero cash balance in its Direct Loan
account. The College did not remit any of the \$146,712 interest
earnings on the money market account to the Department or identify the
earnings on the investment account.

In addition, the College had \$634,000 in ED funds in excess of FWS
program expenditures as of June 30, 2000. The source of these excess
funds was the January 1998 FWS draw down of \$686,100. As of the end of
the audit period, the College retained the \$634,000 in its operating
account.

By not immediately returning the Direct Loan and FWS funds drawn down in
excess of needs and using those funds for other than their intended
purpose, the College breached its fiduciary responsibility to the
Secretary. We determined that the imputed interest cost to the
Government as a result of not returning the funds was \$249,212 for the
Direct Loan program and \$79,052 for the FWS program. The imputed
interest costs were calculated as of June 30, 2000 (the end of the audit
period). The imputed interest costs to the Government were greater than
the interest earned on the money market account; therefore, we recommend
recovery of the imputed interest costs.[^1]

The College also drew down excessive Title III grant funds and did not
return the funds to the Department in a timely manner. This also
resulted in imputed interest costs owed to the Government. See Finding 2
for a discussion of the excessive draw down of Title III funds.

**[RECOMMENDATIONS]{.underline}**

We recommend that the Chief Operating Officer for Federal Student Aid
(FSA):

1.  Require Bennett College to pay the \$249,212 in imputed interest
    costs for the excess cash balance maintained for Direct Loan
    programs.

2.  Require Bennett College to pay the \$79,052 in imputed interest
    costs for the excess cash maintained for the FWS.

3.  Require Bennett College to return the \$634,000 in FWS funds that
    were not spent on ED programs and absorbed into the College's
    operating account.

4.  Initiate appropriate administrative action against the College as
    set forth in 34 C.F.R. Part 668, Subpart G, Fine, Limitation,
    Suspension and Termination Proceedings.

#### BENNETT COLLEGE RESPONSE

The College concurred with the finding and that imputed interest is due
to the Department on the balances not returned to the Department.
However, the College did not concur that the \$634,000 in FWS funds
remained outstanding. The College's response stated that all principal
funds due the Department (directly related to this finding) have been
returned. However, due to new staff not familiar with the analysis
related to these transactions, the College will complete a detailed
analysis of the flow of funds directly related to the FWS draw down to
determine the exact disposition of these funds. The target date for
completion of this analysis is no later than September 30, 2002. See
attachment for the College's written response to the draft report.

**[OIG COMMENTS]{.underline}**

The excessive FWS draw down occurred in January 1998. The \$634,000
amount represents the audited balance of the FWS account as of June 30,
2000. As of that date, the College had not returned the excess FWS funds
from the excessive 1998 draw down. The College was required to spend the
FWS funds within three business days after receipt or return the funds.
As of the end of the audit period (June 30, 2000), the College had not
spent \$634,000 in FWS program funds in excess of receipts and those
funds had been transferred to the College's operating account.

The College should provide evidence to the Department that it repaid the
\$634,000 or documentation that it had additional FWS program
expenditures equal to \$634,000 since June 30, 2000. If the College is
not able to provide such documentation, the \$634,000 should be returned
to the Department. The related imputed interest cost was calculated as
of June 30, 2000, and should be paid to the Department.

**FINDING NO. 2 -- Bennett College Did Not Meet EDGAR Financial
Management System Standards for Administration of Grants**

The College did not comply with financial management system standards
for the administration of grants when it drew down \$456,000 Title III
and \$63,611 MISIP grant funds and did not immediately disburse the
funds for grant expenditures.

Under the requirements of 34 C.F.R. § 74.21(b), the College's financial
management systems must provide:

> Records that identify adequately the source and application of funds
> for \[F\]ederally‑sponsored activities. These records shall contain
> information pertaining to awards, authorizations, obligations,
> unobligated balances, assets, outlays, income, and interest.
>
> Effective control over and accountability for all funds, property, and
> other assets. Recipients shall adequately safeguard all assets and
> assure they are used solely for authorized purposes.

Under the grant payment rules, "\[c\]ash advances to a recipient
organization are limited to the minimum amounts needed and \[must\] be
timed to be in accordance with the actual, immediate cash requirements
for carrying out . . . the approved program or project. 34 C.F.R. §
74.22(b)(2)

A memorandum dated October 22, 1998, from a former College President
stated: "We have just completed the planning review for Title III for
the compilation of the draw down at this time. Please draw down
\$456,000." The \$456,000 draw down depleted the Title III grant and
represented 41 percent of the year's Title III grant award. The funds
were not immediately used for Title III expenditures, nor was the draw
down supported by Title III expenditure documentation. On October 23,
1998, one day after the request for the \$456,000, the College repaid
\$500,000 of the excess Title IV Direct Loan funds.

Subsequent Title III draw down requests were supported by Title III
expenditure documentation. The College continued to draw down Title III
grant funds until the end of May 1999. At that time, the Business Office
accountant informed the Title III Director that there were no ED funds
available to fund the Title III grant through the end of the award
period, September 30, 1999. The Title III Director stated that grant
activities continued through September 30, 1999, and surmised that the
College relied on institutional funds.

As of September 30, 1999, the end of the grant year, the College had
drawn down \$213,979 of Title III grant funds in excess of expenditures.
The College maintained Title III funds in excess of expenditures until
June 29, 2000.

Our analysis of the College's receipts and expenditures for other ED
grant programs revealed that the College maintained unneeded funds for
its MISIP grant. On August 1, 1997, the College drew down the entire
grant amount of \$63,311 and did not spend all of the funds until
June 4, 1999.

By drawing down Title III and MISIP grant funds and not disbursing the
funds for program purposes as close as possible to disbursement, the
College failed to meet ED standards for grantee financial management
systems. We determined that the imputed interest costs to the Government
were \$31,665 and \$3,384 for the Title III and MISIP grants,
respectively. The imputed interest costs were calculated as of June 29,
2000, and June 4, 1999, for Title III and MISIP, respectively.

**[RECOMMENDATIONS]{.underline}**

We recommend that the Assistant Secretary for the Office of
Postsecondary Education:

1.  Require Bennett College to repay the \$31,665 in imputed interest
    costs for the excess cash maintained for the Title III grant.

2.  Require Bennett College to repay the \$3,384 in imputed interest
    costs for the excess cash maintained for the MISIP grant.

**[BENNETT COLLEGE RESPONSE]{.underline}**

The College concurred with the finding and recommendations to repay the
cited imputed interest costs for the Title III and MISIP grants. See
attachment for the College's complete response to the draft report.

**FINDING NO. 3 - Bennett College Did Not Make Timely Payments of
Refunds**

The College was not in compliance with the Title IV requirement to pay
refunds timely when it made such payments 23 to 65 days late.

Pursuant to 34 C.F.R. § 668.22, an institution must return the amount of
Title IV funds for which it is responsible no later than 30 days after
the date of the institution's determination that the student withdrew.

Seventeen students were eligible for a Title IV refund during academic
years 1997-1998 through 2000-2001. We reviewed 15 of the 17 student's
account records and refund calculation sheets. The College was unable to
locate files for two students. The College calculated the refunds
accurately; however, it did not make refund payments within the required
30 days of the withdrawal date. Refund payments were 23 to 65 days late.

Coordination between the various College offices responsible for student
withdrawals was lacking. The Registrar's Office did not notify the
Financial Aid Office timely that a student had withdrawn, which delayed
the calculation of a refund. As a result, the Financial Aid Office did
not get the refund information to the Business Office timely and the
Business Office did not make refunds to ED within the 30-day timeframe.

Bennett College officials revised the withdrawal procedures so that each
office involved in the process has access to information that allows it
to know the withdrawal date soon after the Registrar determines the
date. We did not test the adequacy of the revised procedures.

**[RECOMMENDATION]{.underline}**

We recommend that the Chief Operating Officer for Federal Student Aid
require the College to:

3.1 Institute procedures to ensure that the College pays Title IV
refunds within 30 days of when it determines a student has withdrawn.

**[BENNETT COLLEGE RESPONSE]{.underline}**

The College concurred with the finding and recommendation to institute
procedures to ensure payment of Title IV refunds within 30 days of
student withdrawals. The response stated that the College modified its
withdrawal procedures and the financial management system to facilitate
access to information by each institutional office involved in the
refund process. The response stated that the Business Office reviews the
withdrawal report on a weekly basis to ensure that any refund
calculations are completed within 30 days. See attachment for the
College's complete response.

**[OIG COMMENTS]{.underline}**

The response indicated that the new procedures implemented by the
College would ensure that refund calculations are completed within
30 days; however, the new procedures should also ensure that refunds are
paid within 30 days. The Department should ensure that the procedures
implemented are sufficient to make timely payments of refunds.

**BACKGROUND**

Bennett College, founded in 1873, is a church affiliated 4‑year liberal
arts college for women, located in Greensboro, NC. The College offers 30
majors and awards the Bachelor of Arts, Bachelor of Science, Bachelor of
Arts and Sciences in Interdisciplinary Studies, and the Bachelor of
Social Work degrees. Bennett College has an average enrollment of about
600.

The College participates in the following Title IV programs: William D.
Ford Direct Loan, Federal Pell Grant, Federal Supplemental Education
Opportunity Grant, and Federal Work Study. The College is also a
Title III, Part B, and Minority Science Program grant recipient. College
expenditures for ED programs for the 3 years ending June 30, 2000,
totaled \$15.8 million.

**OBJECTIVES, SCOPE, AND METHODOLOGY**

Our initial audit objectives were to determine whether Bennett College
was in compliance with the Title IV cash management regulations, the
standard of conduct for a fiduciary in the administration of Title IV,
and the Title IV refund requirements. The audit objectives were expanded
to include compliance with the cash management requirements for the
administration of Title III and other ED grant programs. Audit coverage
included the period July 1, 1997, through June 30, 2000; with additional
testing of Title IV refund procedures through the 2000-2001 academic
year.

To accomplish the audit objectives, we performed the following:

-   Reviewed applicable regulations.

-   Reviewed the latest independent auditors' A-133 and Compliance
    reports, and Financial Statements for the years ended June 30, 1998,
    and June 30, 1999.

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-   Interviewed College officials responsible for cash management,
    Federal student aid, and enrollment services.

-   Verified and compared the amounts and dates of receipts and
    expenditures for Title IV and other ED grant programs.

-   Compared the College's Title IV refunds to ED guidelines and
    verified the accuracy and timeliness of Title IV refunds.

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-   Contacted and obtained data from Direct Loan officials in
    Washington, DC, and the Loan Origination Center in Montgomery,
    Alabama.

During the audit, we relied on computer-processed data contained in the
College's computerized accounting system and student records database.
We used award and disbursement data from the Department's Grants
Accounting and Payment System (GAPS) and the Direct Loan Origination
Center database to corroborate information obtained from the College. We
did this by comparing ED program and grant awards, disbursements, and
repayments in the Department's records with the College's data.

We also held discussions with College officials to gain an understanding
of the processes for requesting and drawing down Federal funds, and for
the accounting of revenue from Department programs and grants. Based on
these tests and assessments, we concluded that the data were
sufficiently reliable for our use in meeting the audit objectives.

We performed fieldwork at Bennett College, Greensboro, North Carolina,
from June 4 through June 14, 2001. We held an exit conference with
College officials on August 24, 2001.

The audit was performed in accordance with Government Auditing Standards
appropriate to scope of the audit described above.

**STATEMENT ON MANAGEMENT CONTROLS**

As part of our review, we assessed the system of management controls,
policies, and practices applicable to the College's administration of
cash management for ED funds and Title IV refund procedures. Our
assessment was performed to determine the level of control risk for
determining the nature, extent, and timing of our substantive tests to
accomplish the audit objectives.

Because of inherent limitations, a study and evaluation made for the
limited purpose described above would not necessarily disclose all
material weaknesses in the management controls. However, our assessment
disclosed management control weaknesses that affected the College's
ability to comply with cash management requirements in 1998 and Title IV
institutional refund and repayment requirements. These weaknesses and
their effects are fully discussed in the AUDIT RESULTS section of this
report.

**ADMINISTRATIVE MATTERS**

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

Theresa S. Shaw, Chief Operating Officer

Federal Student Aid

Department of Education

Union Center Plaza, Room 112G1

830 1^st^ Street NE

Washington, D.C. 20202

Office of Management and Budget Circular A‑50 directs Federal agencies
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 if you wish to discuss the contents of this
report, please contact J. Wayne Bynum, Regional Inspector General for
Audit, at 404‑562‑6477. Please refer to the Control Number ED/OIG
A04‑B0015 in all correspondence relating to this report.

Sincerely,

Thomas A. Carter

Assistant Inspector General for Audit Services

Attachment

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**REPORT DISTRIBUTION LIST**

**Control Number OIG / A04-B0015**

[Copies]{.underline}

**[Auditee]{.underline}**

Dr. Johnnetta B. Cole 1

President

Bennett College

**[ED Action Official]{.underline}**

Theresa S. Shaw, Chief Operating Officer 1

Federal Student Aid

Department of Education

#### ED Collateral Action Official

Sally Stroup 1

Assistant Secretary

Office of Postsecondary Education

#### Other ED Officials (electronic copy)

Audit Liaison Officer, Office of Postsecondary Education 1

Chief of Staff, Office of the Secretary 1

Deputy Secretary, Office of the Deputy Secretary 1

Under Secretary, Office of the Under Secretary 1

Assistant Secretary, Office of Intergovernmental and Interagency Affairs
1

Office of General Counsel 1

Correspondence Control, Office of General Counsel 1

Chief Financial Officer, Office of the Chief Financial Officer 1

Post Audit Group, Office of the Chief Financial Officer 1

Director of Financial Improvement and Post Audit Operations, 1

Office of the Chief Financial Officer

Legislation and Congressional Affairs 1

Director, Office of Public Affairs 1

Director, Communications 1

Area Case Director for Case Management and Oversight 1

**[Office of Inspector General]{.underline}**

Inspector General 1

Deputy Inspector General 1

Assistant Inspector General for Analysis and Inspection 1

Assistant Inspector General for Investigation 1

Assistant Inspector General for Audit 1

Regional Audit Offices 1

General Operations Team 1

Director, Student Financial Advisory and Assist Team 1

Director, Financial Statements Internal Audit Team 1

Director, Systems Internal Audit Team 1

Director, Operations Internal Audit Team 1

Director, Advanced Techniques Coordination Team 1

Audit Team Members 1

[^1]: Imputed interest cost is the Government's cost of borrowing money
    to replace funds transferred from the U.S. Treasury unnecessarily.
    The cost is calculated at the Treasury's cost of borrowing money
    during the period that excess funds are issued until the funds are
    repaid.