![](media/image1.png){width="1.229861111111111in"
height="1.175in"}**UNITED STATES DEPARTMENT OF EDUCATION**

**OFFICE OF INSPECTOR GENERAL**

501 I STREET, SUITE 9-200

SACRAMENTO, CALIFORNIA 95814

PHONE (916) 930-2388 • FAX (916) 930-2390

March 26, 2007

> Control Number

[EDOIG/A09G0033]{.underline}

Dr. Steven C. Ballard, Chancellor

##### East Carolina University {#east-carolina-university .unnumbered}

105 Spilman Building

Greenville, NC 27858

Dear Dr. Ballard:

This **Final Audit Report**, entitled *East Carolina University's
Verification of Applicant Information Submitted on the Free Application
for Federal Student Aid,* presents the results of our audit. The purpose
of the audit was to determine if East Carolina University completed
verification of applicant data and accurately reported verification
results to the U.S. Department of Education (Department) for the period
July 1, 2005, through June 30, 2006 (award year 2005-2006).

BACKGROUND

Students apply for Federal student aid by completing a Free Application
for Federal Student Aid (FAFSA), which is processed by the Central
Processing System (CPS). The CPS uses the application information and
the statutory needs analysis formula to calculate each applicant's
expected family contribution (EFC). If the EFC is less than the
student's cost of attendance, a student has financial need and may be
eligible to receive financial aid under the Higher Education Act of
1965, as amended (HEA), Title IV programs.

The CPS selects applications for verification, which is the process used
to ensure that students and parents report accurate financial and
demographic data on the FAFSA. Verification is required under Subpart E
of 34 C.F.R. Part 668. For enrolled students who were selected by the
CPS for verification, the schools verify the accuracy of five items of
data: adjusted gross income, U.S. income tax paid, household size,
number of students in the household who are enrolled in college, and
certain untaxed income benefits. Students must provide schools with
income tax returns and other documents to support the reported data. The
school has completed verification when it has either determined that the
application data are correct or when the corrected data have been
submitted to the CPS. The school must document verification and maintain
a CPS document in its files showing the student's final EFC.

When a school disburses a Federal Pell Grant for a student, the school
is required to report the verification status of the student's
application to the Department's Common Origination and Disbursement
(COD) system.[^1] As described in the *Federal Student Aid Handbook
2005-2006,* "Application and Verification Guide," the verification
status codes are---

-   **V** -- School completed verification of the student's application.
    This code is used for both applications selected by the CPS for
    verification and those the school chose to verify based on its own
    criteria.

-   **S** -- The CPS selected the student's application for
    verification, but the school did not verify the application
    information because 1) the school participates in the HEA, Title IV,
    Quality Assurance (QA) Program[^2] and the student's application did
    not meet the school's verification criteria or 2) the school elected
    not to verify the student's application because the school had
    reached the 30 percent threshold for required verifications.[^3]

-   **W** -- The CPS selected the student's application for verification
    [and]{.underline} the school has elected to make an interim Pell
    Grant disbursement prior to completing the verification of the
    application data. The school updates the code to a **V** when
    verification is completed.

-   **Blank** -- Neither the CPS nor the school selected the student for
    verification.

Schools receive a monthly Pell Verification Status Report from the COD
system that shows students who have been selected by the CPS for
verification and have a blank or **W** status. In addition, schools can
request a Pell Reconciliation Report that shows the verification status
of all students who were selected by the CPS for verification.

East Carolina University (ECU) is a public university accredited by the
Southern Association of Colleges and Schools, Commission on Colleges.
ECU operates a main campus in Greenville and 19 satellite campuses
located throughout North Carolina. ECU has an enrollment of about
23,000 students and offers bachelor's, master's, and graduate's degrees
in about 200 areas of study. ECU also offers 47 vocational/non-degree
programs. Educational programs are provided on a standard-term calendar
that is measured in semester credit hours.

ECU participates in the following HEA, Title IV programs: Federal Pell
Grant, Federal Supplemental Educational Opportunity Grant, Federal
Perkins Loan, Federal Family Education Loan, and Federal Work Study.
During the period from July 1, 2004, through June 30, 2005, ECU
disbursed about \$104 million in Title IV funds, which included about
\$14 million from the Federal Pell Grant Program.

AUDIT RESULTS

ECU had policies and procedures for ensuring that FAFSA information was
verified in accordance with the applicable HEA provisions, Federal
regulations, and Department guidance, but ECU did not consistently
adhere to the procedures. An analysis of information in the Department's
databases identified 2,629 ECU students who had an application selected
by the CPS for verification and received a Pell Grant disbursement for
award year 2005‑2006. Our review of ECU's student financial aid files
for a random sample of 25 of the 2,629 students found that ECU staff did
not properly perform the verification for 3 of the 25 students. ECU also
did not report student verification statuses to the Department's COD
system. In its comments to the draft report, ECU concurred with our
findings and recommendations. ECU's comments are summarized at the end
of each finding and the full text of the comments is included as an
attachment to the report.

**FINDING NO. 1 -- ECU** **Did Not Resolve Conflicting Information
During the Verification Process**

ECU did not properly perform the verification process for 3 of the
25 students in our sample. For three students, ECU did not resolve
non-taxable income information reported on the FAFSA that conflicted
with information on other documents in the student's file. Under
34 C.F.R. § 668.16(f), an institution must resolve conflicting data
during the verification process. After being advised of the errors, ECU
resolved the information, recalculated the student EFCs, and determined
that one student had received a Pell overpayment of \$1,373 and another
had received a Pell overpayment of \$91. The recalculation did not
change the EFC for the third student. ECU reported the changes in the
FAFSA information to the CPS. ECU's Assistant Vice Chancellor for
Financial Aid stated that the errors were made by inexperienced staff
who are no longer involved in the verification process.

Prior to our review, ECU's internal audit staff had also identified
errors in the verification process. The internal audit staff's review of
student files for award year 2005‑2006 found that 4 of 20 student files
contained verification errors. In response to the internal audit
findings, the Financial Aid Department added a quality control position
to its staff that will review student file for adherence to ECU's
policies and procedures, including its procedures related to the
verification process. ECU's Director of Internal Audits also advised us
that the University would be migrating to a new student information
system in mid-2007.

**Recommendations**

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

1.  Require ECU to return to the Department the \$1,373 and \$91 in
    Federal Pell Grant funds that were overpaid to the two students.

2.  Require ECU to identify other Title IV overpayments made to students
    for award year 2005-2006 due to conflicting information that was not
    resolved during the verification process and return the Title IV
    overpayments to the Department.

3.  Take appropriate action to ensure that ECU staff are resolving
    conflicting information in student files.

**ECU's Comments**

ECU concurred with the finding. ECU stated that it has returned the Pell
Grant funds to the Department for the two overpaid students, is
contracting with a consulting firm to re‑verify FAFSA information for
Pell Grant recipients for award year 2005-006, and will request that its
independent public accountant, as part of the next scheduled audit,
review a sample of students selected for verification to confirm that
ECU staff are resolving conflicting information in student files.

**OIG Response**

The action's described in ECU's comments should address our finding, if
properly designed and implemented. We have revised the draft report's
language for recommendation 1.3 to address potential conflicts with
audit requirements in Office of Management and Budget Circular A-133 and
to provide FSA with more flexibility in selecting the method used to
confirm that ECU appropriately implemented the needed corrective action.

**FINDING NO. 2 -- ECU Did Not Report Verification Status Codes to the
COD System**

All students we identified from the Department's database, whose
applications were selected by the CPS for verification and who received
Pell Grant disbursements for award year 2005‑2006, had a verification
status of blank in the COD system. Our review of files for 25 students
found that ECU had completed the verification process for the students,
although not always in conformance with ECU's procedures. Thus, the
students should have had a verification status of **V** in the
COD system.

The Assistant Vice Chancellor for Financial Aid advised us that, for
award year 2005-2006, ECU was required to change the file format used to
report information to the COD system. In collaboration with an ECU
Applications Programmer, the Assistant Vice Chancellor decided to
include only required fields in the new format to streamline the
process. Since COD's Technical Documentation for 2005-2006 identifies
the student verification status as an optional field, the ECU
Applications Programmer did not include the verification status in the
data extraction software program. Hence, the student verification status
was not reported to the COD system. The Assistant Vice Chancellor was
not aware that the University was receiving the Pell Verification Status
Reports from the COD system to confirm that verification status had been
properly reported.

Under 34 C.F.R. § 668.14(b)(7), an institution must "submit reports to
the Secretary at such times and containing such information as the
Secretary may reasonably require . . . ." The *Federal Student Aid
Handbook 2005-2006*, "Application and Verification Guide," requires
that, when an institution disburses a Pell Grant, it must report through
the COD system the student's verification status.

The ECU Applications Programmer advised us that the software program has
been revised to include the student verification status in reports to
the COD system for award year 2006-2007. ECU also appropriately updated
the verification status for the 25 sampled students from a blank to
a **V** in the COD system. Our review of the information in the COD
system found that ECU had also changed verification statuses for other
students.

**Recommendations**

## We recommend that the Chief Operating Officer of Federal Student Aid--- {#we-recommend-that-the-chief-operating-officer-of-federal-student-aid .unnumbered}

##  {#section .unnumbered}

## Require ECU to confirm that the verification status has been appropriately reported to the COD system for all students for award year 2005-2006. 

##   {#section-1 .unnumbered}

## Require ECU to implement regular reviews of COD Pell Verification Status Reports to ensure that verification status is properly reported to the COD system. 

1.  Take appropriate action to ensure that ECU is properly recording the
    verification status and regularly reviewing the COD Pell
    Verification Status Reports to ensure that the verification status
    is being accurately reported to the COD system.

**ECU's Comments**

ECU concurred with the finding. ECU stated that it has initiated action
to correct verification status in the COD system for award year
2005-2006, has implemented regular reviews of the COD Pell Verification
Status Reports, and will request that its independent public accountant,
as part of the next scheduled audit, review that ECU is properly
recording verification statuses and regularly reviewing the COD reports.

**OIG Response**

The actions described in ECU's comments should address our finding, if
properly designed and implemented. We have revised the draft report's
language for recommendation 2.3 to address potential conflicts with
audit requirements in Office of Management and Budget Circular A-133 and
to provide FSA with more flexibility in selecting the method used to
confirm that ECU appropriately implemented the needed corrective action.

OBJECTIVES, SCOPE, AND METHODOLOGY

Our audit objective was to determine if ECU completed verification of
applicant data and accurately reported verification results to the
Department. The audit covered award year 2005-2006. To accomplish our
objective, we---

-   Gained an understanding of applicable laws, regulations, and the
    Department's *Federal Student Aid Handbook 2005-2006*,"Application
    and Verification Guide.*"*

-   Reviewed the State of North Carolina's single audit report prepared
    by the North Carolina State Auditor for the year ended
    June 30, 2005; an ECU internal audit report on student verification,
    dated September 1, 2006; and correspondence from the Department

-   Verified ECU's accreditation status.

-   Gained an understanding of ECU's internal control for the
    verification process by 1) reviewing written policies, procedures,
    and correspondence related to the verification process, 2) obtaining
    information on the manual and electronic processes applicable to
    verification and reporting of the verification status to the COD
    system, and 3) interviewing financial aid staff involved in the
    verification process.

-   Evaluated documentation in student financial aid files related to
    the verification of applicant data.

To evaluate ECU's procedures and compliance with the Title IV, HEA
program verification requirements, we reviewed documentation in student
financial aid files for 25 students randomly selected from the 2,629 ECU
students who had an application selected for verification by the CPS and
received a Pell Grant disbursement for award year 2005‑2006.

We relied on data extracted from the CPS and the Department's National
Student Loan Data System to identify the ECU students whose application
was selected for verification by the CPS and received a Pell Grant
disbursement for award year 2005‑2006 (sampling universe). To assess the
completeness of the extracted data, we compared the total records on the
extract to totals reported on Department management information reports.
During our review of student financial aid files for the 25 students, we
confirmed that the documentation showed that CPS had selected the
students for verification. We concluded that the extracted data were
sufficiently reliable for use in selecting the sample of student
reviewed in the audit.

We reviewed information in the COD system to confirm that ECU, in
response to our finding, had properly updated the student verification
status for the 25 sampled students.

We performed our fieldwork at the ECU campus in Greenville, North
Carolina. We held an exit briefing with ECU officials on September 14,
2006. Our audit was performed in accordance with generally accepted
government auditing standards appropriate to the scope of the review
described 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 of Education
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 Education 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, Room 112G1
>
> 830 First Street, NE
>
> Washington, D.C. 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

**East Carolina University's Comments to Draft Audit Report**

February 21, 2007

Ms. Gloria Pilotti

Regional Inspector General for Audit

United States Department of Education

Office of Inspector General

501 I Street, Suite 9-200

Sacramento, California 95814

Re: ED-OIG/A09G0033

Dear Ms. Pilotti:

Thank you for the opportunity to review and comment on the draft report
dated January 25, 2007, entitled *East Carolina University's
Verification of Applicant Information Submitted on the Free Application
for Federal Student Aid.* Below you will find East Carolina University's
formal responses to the findings and recommendations as listed in your
draft report. We also respectfully request that the title "ECU's
Assistant Chancellor for Financial Aid" be changed to "ECU's Assistant
Vice Chancellor for Financial Aid" in the draft report.

**FINDING NO. 1 - ECU Did Not Resolve Conflicting Information During the
Verification Process**

**Recommendations --** We recommend that the Chief Operating Officer for
Federal Student Aid require ECU to-

1.1 Return to the Department the \$1,373 and \$91 in Federal Pell Grant
funds that were overpaid to the two students.

1.2 Identify other Title IV overpayments made to students for award year
2005-2006 due to conflicting information that was not resolved during
the verification process and return the Title IV overpayments to the
Department.

3.  Have its independent public accountant, as part of the institution's
    next scheduled audit,

review a representative sample of students selected by the CPS for
verification to ensure that

ECU staff have resolved conflicting information in student files.

**University's Response:** ECU concurs with the finding and we are
taking the following corrective actions:

1.1 ECU has returned to the Department the \$1,373 and \$91 that were
overpaid to the students.

Target Completion Date: Completed September 15, 2006

2.  ECU is contracting with a consulting firm to re-verify the Federal
    Pell Grant recipients who were verified for award year 2005-2006.

> Targeted Completion Date: To be determined by consultant.

3.  ECU will request the North Carolina State Auditor's Office, which is
    our independent public accountant, to review during ECU's next
    scheduled audit, a representative sample of students selected by the
    CPS for verification to ensure that ECU staff have resolved
    conflicting information in student files.

> Targeted Completion Date: Next scheduled audit for fiscal year
> 2006-2007 starts approximately June, 2007 and concludes approximately
> October, 2007.

**FINDING NO. 2 -- ECU Did Not Report Verification Status Codes to the
COD System**

**Recommendations:** We recommend the Chief Operating Officer of Federal
Student Aid require ECU to-

2.1 Confirm that the verification status has been appropriately reported
to the COD system for all students for award year 2005-2006.

2.2 Implement regular reviews of COD Pell Verification Status Reports to
ensure that verification status is properly reported to the COD system.

2.3 Have its independent public accountant, as part of next scheduled
audit, confirm that ECU is properly recording the verification status
and regularly reviewing the COD Pell Verification Status Reports to
ensure that the verification status is being accurately reported to the
COD system

**University's Response:** ECU concurs with the finding and we are
taking the following corrective actions:

2.1 ECU has confirmed that the verification status has been
appropriately reported to the COD system for all students for award year
2005-2006, except for those noted under targeted completion date.

Targeted Completion Date: Completed September 15, 2006

> Note: ECU identified 21 students as having an incorrect status. We
> have requested permission from COD to update those records and are
> awaiting an answer.

2.2 ECU has implemented regular reviews of COD Pell Verification Status
Reports to ensure that verification status is properly reported to the
COD system.

Targeted Completion Date: Completed October 1, 2006

2.3 ECU will request the North Carolina State Auditor's Office, which is
our independent public accountant, to review during ECU's next scheduled
audit, that ECU is properly recording the verification status and
regularly reviewing the COD Pell Verification Status Reports to ensure
that the verification status is being accurately reported to the COD
system.

> Targeted Completion Date: Next scheduled audit for fiscal year
> 2006-2007 starts approximately June, 2007 and concludes approximately
> October. 2007.

If you should have any questions regarding our responses, please contact
Stacie Tronto, Director of Internal Audit at (252) 328-9025.

Sincerely,

Steve Ballard

Chancellor, East Carolina University

cc: Mr. Steve Showfety

Dr. James LeRoy Smith

Dr. Henry Peel

Mr. Don Joyner

Ms. Rose Mary Stelma

Mr. Kevin Seitz

Ms. Stacie Tronto

[^1]: The Department's COD system performs a variety of functions
    related to awarding and disbursing Pell Grants, William D. Ford
    Federal Direct Loans, and funds from campus-based programs.

[^2]: Schools participating in the QA Program use their own criteria for
    selecting applications for verification that is tailored to their
    student population. QA schools are exempt from the requirement to
    verify 30 percent of student applications. ECU is not a participant
    in the QA Program

[^3]: In an Electronic Announcement dated March 9, 2006, the Department
    explained that schools may report either an **S** or leave the
    verification status blank for students in the excluded category
    (i.e., incarceration, recent immigrant, spouse unavailable, parents
    unavailable, death of the student, applicant verified by another
    school, Pacific Island resident, or not an aid recipient). Schools
    are not required to complete verification for students in the
    excluded category.