# Presentation: 715800

## Session C-29

_**Program Compliance 101**_** **
- An Inside Look at the Operations of the School Participation Teams
- Douglas Parrott
- Geneva Leon
- U.S. Department of Education

- Las
- Vegas

## Program Compliance Office, FSAVictoria Edwards, Chief Compliance Officer

**Program Compliance Office, FSA****Victoria Edwards, Chief Compliance Officer**

- School eligibility
- Financial institutions oversight
- Integrated partner management
- Administrative actions & appeals
- Performance improvement & procedures

**Notes:**
The Program Compliance office is within the Federal Student Aid at the U.S. Department of Education.  The primary focus is providing integrated oversight and management improvement services to participating entities.  This includes monitoring activity to determine whether entities meet regulatory requirements for eligibility, administrative capability, and financial responsibility.  The office is divided into 5 primary areas:

School Eligibility (Schools eligibility & oversight & is the focus of this discussion)
Financial Institutions Oversight – (Lenders, GA, Servicers)
Integrated Partner Management-(Provide IT support)
Administrative Actions & Appeals (Handles Subpart G, Subpart H & other appeals)
Performance Improvement & Procedures (Provides expert functional & procedures support)

## Domestic Schools & Funding By Type

**Domestic Schools & Funding By Type**

**Proprietary**
**1,836**
**27.7%**

**Public**
**1,944**
**29.3%**

**Priv. Non Profit**
**2,012**
**30.3%**

**Public**
**$37.2B**
**48.6%**

**Proprietary**
**$13.3B**
**17.4%**

**Priv. Non Profit**
**$25.4B**
**33%**

## 2007 Foreign School Population (FFEL Only)
20,624 Students
$525 M 
1.0% Default Rate 

- 20,624 Students
- $525 M
- 1.0% Default Rate

| Loan Volume | Eligible Schools |  | 2007 Funding | % of Funds |
| --- | --- | --- | --- | --- |
| $500,000 +  | 93 | 19.3% | $473,848,671 | 90.3% |
| $100,000 – 499,999 | 168 |  34.85% | $ 42,606,192 |   8.1% |
| $1 – 99,999 | 173 | 35.9% | $ 8,441,800 |   1.6% |
| None | 48 |    9.95% | -- | -- |
| TOTALS | 482 | 100% | $ 524,896,663 | 100% |

**School Eligibility - Foreign Schools Update**

**Notes:**
Insert (x% of federal student loans)

## School Elig: Ensuring Program Integrity  

**Program Review**

**Eligibility &**** Recertification**

**Comprehensive ****Compliance Review**

**Method of Payment**

**Notes:**
What we will cover in this presentation:
Comprehensive Compliance Review
Recertification (full or provisional):
Revocation & Denials
New schools on 1 year provisional
Change of ownership on provisional up to 3 years
Annual financial statements 
Annual compliance audits
Program reviews
Method of Payment

## Comprehensive Compliance 

- Eligibility Reviews (e.g., Recertifications, CIOs)
- Compliance Audits with Deficiencies
- Financial Statements that Do Not Conform
- Statistical Analysis of School or Student Data
- Program Review

**Comprehensive Compliance **
**Review-CCR**

## CCR: School Oversight

| OVERSIGHT ACTIVITIES | FY07 |
| --- | --- |
| Comprehensive Compliance Review | 3,498 (56%) |
| Eligibility and Re-certification | 1,874* |
| Deficient Audit | 1,457* |
| Flagged Financial Statements | 1,351* |
| Completed Merger/CIO |   129* |
| Program Reviews |   99* |

**CCR: School Oversight**

- * A school may be counted in 1 or more of these activities

**Notes:**
Of the 6,145 school’s that were eligible to participate in FY 2007, 56% (or 3,498) were given a comprehensive compliance review.

Total funding of all schools was $72.7 Billion; CCR covered $43.7 Billion (or 60.1%)

Fewer Program Reviews conducted because staff were redirected on internal office and system improvements.  FY08 will should a significant increase (closer to 200)

## Perform statistical analysis of student & school data
Identify data anomalies & develop action plan
Take follow-up actions & evaluate
Examples
Dependency Override
Verification
AGI Inconsistencies
Recipients over age 65

- Identify data anomalies & develop action plan
- Take follow-up actions & evaluate
- Examples
- Dependency Override
- Verification
- AGI Inconsistencies
- Recipients over age 65

**CCR: ***** *****Data Anomalies**

## Eligibility & Recertification(Begins w/E-App)

- Perform Acceptability Review
- Review Electronic File & Supporting Documentation, Request Add’l Information
- Analyze Information Submitted & Verify w/ Accreditor and State
- Confirm School’s Policies Meet Requirements
- Examine the School’s Website for Additional Information

## www.eligcert.ed.gov

**www.eligcert.ed.gov**

**Notes:**
This is the www.eligcert.ed.gov  website that enables you to:
Check the Status of your Application
Display your PPA/ECAR - Once FSA’s review completed, e-mail sent to school informing PPAs are Available
School reviews/prints/signs PPA
Returns 2 PPAs to ED for final approval
ED mails signed PPA

## Changes that require 10 day notification only thru E-App:

- Name, Address, Phone, Fax
- Principals:
- President, CEO, CFO, FAA, Board
- Owners who can influence
- 3rd Party servicers
- Academic Measurement
- Closure of a Location
- Change in Governance
- New Locations*
- New Programs*
- *unless required to “apply for” & wait for approval

**Notes:**
We want to remind schools that the following institutional changes require reporting within 10 days of the change.  The institution is not required to seek approval of these changes, but must submit them through the E-App process.

New Locations, if not provisionally certified, on cash monitoring, did not acquired assets of another school, are not subject to default rate sanction, and not otherwise restricted by FSA
New Educational Programs that are the same or similar vocation or same or lower degree.

## Eligibility Changes Requiring Application & Approval Prior to Awarding Title IV Funds

- New Educational Programs
- Higher Level Offerings, New Vocational Programs, Short-term Programs
- New Locations, if
- Provisionally Certified, On Cash Monitoring, Acquired Assets of Another School, Subject to Default Rate Sanction, or Otherwise Restricted by FSA
- Changes in Accreditation, Licensure, Structure
- Adding New Title IV Programs

**Notes:**
Not appropriately applying and waiting for approval to participate under these conditions can result in a liability being assessed for any Title IV Funds disbursed.  We want to highlight with area of updates particularly to help you avoid these errors and the potential liability associated with them. 

## School Eligibility - Oversight Activities

| Action | # Schools (FY07) |
| --- | --- |
| Revocation | 1 |
| Denial (Initial, Recert, CIO) | 25 |
| Voluntary Withdrawal | 20 |
| Loss of Elig (Other) | 68 |

**School Eligibility - Oversight Activities**

| Action | # Schools (FY07) |
| --- | --- |
| Provisional Certification | 1,253 |
| Heightened Cash Monitoring | 438 |
| Letter of Credit (LOC) | 454 |

## Provisional Reasons

- Late Submission of Audits, E-App
- Unresolved Program Review or Audit Significant Findings
- Provisional Alternative-Letter of Credit
- Deficiencies in Administrative Capability
- Cohort Default Rates Exceeding Thresholds
- Restrictions Imposed by Accreditor & State

## Provides Instant Audit Info 

Identifies Overdue Audits

Streamlined FSA Review Process

Non-editable PDF file (official record) Retained & Used to Validate Data

Add’l Changes to Reduce Reporting Burden

**Ez-Audit System**
- _[https://ezaudit.ed.gov/EZWebApp/common/login.jsp](https://ezaudit.ed.gov/EZWebApp/common/login.jsp)_

- Provides Instant Audit Info
- Identifies Overdue Audits
- Streamlined FSA Review Process
- Non-editable PDF file (official record) Retained & Used to Validate Data
- Add’l Changes to Reduce Reporting Burden

**Notes:**
EzAudit Strengthened Internal Financial Management & Controls
Streamlined FSA review process (assignment, resolution, approval)

## Acceptability Review Process

- Audits Reviewed for Acceptability & Completeness (Source document is compared to data entered)
- Incomplete Notice Posted to the eZ-Audit if not Accepted (return within timeline provided)
- Findings are Identified & Sent for Additional Resolution if Necessary
- Financial Failures & Adverse Disclosures (i.e. Contingent Liabilities, Debt Agreement Violations, Reviews & Investigations) Identified & Sent for Resolution

**Notes:**
Audits need to be GAAP/GAGAS or A-133 for Public schools and private non-profits with over $500,000 in Federal funds.  Note that many schools try to be treated below the $500,000 threshold because they disbursed under $500,000 in Title IV funds, but many times they receive other federal funds and cross the threshold, as a result they are required to submit a complete A-133 audit.
Financial .PDF Attachments Viewable
Institution entered the correct audit period
Confirm the auditor report opinion (Unqualified, Qualified, Adverse, Disclaimed,  Going Concern Paragraph) Unqualified is good-no issues, “clean opinion”.  Qualified (Includes some type of exception can be a single deviation from GAAP or Scope limitation (sample Inventory not tested)  Adverse Opinion - auditor indicating that a company's financial statements are misrepresented, misstated, and do not accurately reflect its financial performance and health. Adverse opinion it implies wrongdoing.
For A-133 schools, opinion could be on anything the auditor is reviewing - not limited to Title IV issues
Verify line items in composite score. 

## Financial Responsibility

**Financial Responsibility**

- ED Determines by Reviewing Audited Financial Statements (34 CFR §668.171 & 34 CFR §668.15) for the Following:
- With an Initial, Recertification, or Reinstate Application to Participate
- With a CIO/Merger Application
- Annually Submitted Audited Financial Statements

**Notes:**
Primary review of financials are required for initial applications, change in ownership, and flagged annual financial statements.

## Review Zone Reporting Requirements 

Administer Letters of Credit 

Release Institutions from Zone, Provisional & LOC Alternatives

Assess Violations of Debt Payment, Financial Obligation & Past Performance Standards 

Perform Pre-Acquisition Review for CIO

Make Quality Control Referrals to OIG 

- Review Zone Reporting Requirements
- Administer Letters of Credit
- Release Institutions from Zone, Provisional & LOC Alternatives
- Assess Violations of Debt Payment, Financial Obligation & Past Performance Standards
- Perform Pre-Acquisition Review for CIO
- Make Quality Control Referrals to OIG

**Notes:**
Method of payment changes for failing financials.
FA’s have to reconcile LOC’s.  Currently a manual process because of two recording systems and they do not always match.
We rarely get Zone reports from schools and most of the times there is nothing we can do with the information.  Example: Owner takes out money.
FYE are routine following change in ownership so that the FYE matches the new owners, but when a school tries to change to a new fiscal year to beat the system then we have a problems. Example would be a school submitting late audits tries to switch to new fiscal year end to get a better composite score.  No regulatory basis to prevent a C-Corp from changing FYE, but an S-Corp has to have a 12/31 FYE.

## Letters of Credit

**Letters of Credit**

- New Institutions minimum 50% LOC only
- Participating Institutions –
- 10% LOC (minimum), Provisional Certification, Zone Reporting Requirements, HCM-1 or HCM-2  or
- 50% LOC (minimum) Considered Financially Responsible
- FY 2007: 454 Schools on LOC’s ($298.5 M)

**Notes:**
50% LOC provision is included in the PPA if school is undergoing a recertification.

## Integrated Partner Mgmt (IPM)

- (Phase I: E-App, Ez-Audit, Lender App)
- User Interface w/ Additional Help Features
- Easier Navigation & Single Entry Point for FSA Service
- Increased Partner Security Using a Unique Entity Identifier (Routing Identifier or RID)
- Proactive Communications w/Partners, Notifying in Advance When Submissions/Information- Due to FSA
- More Electronic Information & Electronic Signatures (App & PPA)

**Notes:**
We decreased the # of data entry items in Ezaudit to reduce reporting burden.
In the Future IPM will replace current electronic Application (eAPP), eZ-Audit, and Lender Application (LAP) features and will modernize the way Partners (such as Institutions, Lenders, and Guaranty Agencies) submit their eligibility application to participate in Title IV funding, maintain this eligibility, enroll for services and submit their Financial Statements and Compliance Audit data.
The main benefits of the IPM solution include:
a consistent user interface with additional help features, 
easier navigation through Application and Submission questions, 
a single entry point for signing up for the services provided by Federal Student Aid. 
increased Partner security using a unique entity identifier (Routing Identifier or RID), 
proactive communications with Partners, notifying in advance of when submissions or information is due to FSA, and
information between Partners and FSA will be electronic to IPM, thus reducing the risk of lost paper applications or documents (App & PPA).

We will keep partners informed about important cutover information from the current legacy systems to IPM.

## External Review Process

- Audits (Annual & OIG)
- Program Reviews (ED & GA)
**Purpose of External Reviews**
- Evaluate if Institutions are Properly Administering Title IV Programs
- Fulfill Oversight Responsibilities for Title IV Programs

**Notes:**
School Participation Teams have several tools to monitor Program Integrity.  Audits and Program Reviews are 2 such tools and are used to measure an institution compliance with Title IV requirements. 

Institutions that receive funds from the Federal Student Aid Programs must submit an annual audit to the Department.  For Profit-A certified independent public accountant (IPA) must prepare the non-federal compliance and financial audit using the SFA Audit Guide posted by OIG.  Public/NonProfit-A independent public accountant or state auditor prepares the audit under the Single Audit Act-OMB Circular A-133. These audits are submitted through Ezaudit and those with deficiencies are resolved by the School Participation Teams.  ED’s OIG may also conduct an audit of selected schools, which cover cash management, institutional and student eligibility, and/or associated internal controls.  SPTs also resolved these audits.

Program Reviews are mandated by law with priority given to high default issues; significant funding fluctuations, deficiencies noted by State licensing or Accreditor, high dropout rates, or any other issue that may pose a significant risk or failure to comply with Title IV requirements.
The overall purpose of external reviews is to evaluate if an institution is properly administering Title IV programs; and to fulfill ED’s oversight responsibilities, which includes requiring corrective actions and assessing liabilities for errors in performance. 

## Audit Resolution Process

- ED Performs Acceptability Review
- Teams Perform Further Analysis of Compliance Audits w/Deficiencies & CCR
- Teams can Contact School or Auditor to Requesting or Clarify Information (may include a total file review)
- Teams issue a Final Audit Determination Letter

**Notes:**
Talk about Liabilities under Program Review – process is the same

## Audit – Finding Incorrect

- Ask Auditor which Regulation or Law was Violated & Discuss a Reasonable Resolution
- Indicate in CAP Reasons Why the Finding is Erroneous
- Necessary for Audit Resolution Process
- Provide Details to Support Position & Cite Regulation or Law in Support of Assertion

**Notes:**
If an institution feels the finding the auditor has cited is incorrect, it should ask the auditor to identify the exact regulation or law that has been violated and then discuss a reasonable resolution.  The institution should then indicate in its Corrective Action Plan the reasons it disagrees with the auditor’s conclusions and provide a detailed reason(s) the auditor’s exception is incorrect.  

This information will be reviewed along with the auditor’s finding during the audit resolution process performed by ED.  Be sure to include all regulatory or statutory citations that apply in support of your assertion.  

## Audit Findings-High Dollar

- R2T4 Calculation Errors, Not Made or Made Late
- Audit Report Not Submitted – Closed School
- Verification Violations
- Attendance Records Missing/Policy Inadequate

**Notes:**

Audit Report Not Submitted – Closed School – anytime a close-out audit is not received from an institution that has closed, the institution will be assessed a liability based on all the unaudited funds received.  That liability is established with our Finance Office and referred to the Department of Justice if not paid.

## Audit Findings-High Dollar (Cont.)

- Account Records Inadequate/Not Reconciled
- Ineligible Branch/Location
- FFEL Disbursements Attributed to Unattended/ Incorrect Payment Periods
- Single Delivery of FFEL Proceeds/Improper Disbursement Schedule

## Program Review ProcessAuthority 34 CFR 668.24(f)

- Select School for Review
- Research Available Data
- Determine Type of Review (On or Off-Site; Focused, General Assessment)
- Notify the Institution & Request Information
- Conduct Entrance Conference & Request Student Files
- School Provides Access to Records (FERPA 34 CFR 599.31, 99, 35) & FSA Performs Review

## Program Review: Critical Items

- Institutional & Program Eligibility
- Fiscal & FISAP Review
- Financial Responsibility
- Campus Security
- Incentive Compensation
- Borrower Choice & Lender/GA Inducements
- Managing Access to ED Systems

## Program Review: Student Items

- Student Eligibility
- R2T4 & ATB
- Credit Balances
- Enrollment Status

- Attendance & SAP
- Verification & PJ
- Dependency Overrides
- Cost of Attendance

- Calculations & Disbursements-Title IV Funds

## Program Review Outcomes

- Conduct Exit Conferences & Provide Preliminary Findings (Optional)
- Analyze Workpapers, Prepare & Issue Program Review Report (May Include Total File Review &/or Change in Method of Payment)
- If Institution Disagrees w/Finding(s) It Should Provide Details to Support Position
- Review Institution’s Response
- Make & Send Final Determinations

## Program Review & Audit Liabilities

- Must be Repaid within 45 Days of Receipt of the FPRD Unless:
- Institution Makes Repayment Plan w/ED
- Files an Appeal within 45 days
- Appeal of Liabilities Must Include:
- Findings, Issues & Facts Being Disputed
- School’s Position w/ Pertinent Facts & Reasons for Position Clearly Stated
- Copy of Final Audit or PR Determination Letter

## PR Findings-High Dollar

- Improper/Undocumented Dependency Overrides
- Pell- Ineligible Pell Disbursements
- Ability to Benefit Violations
- Refunds Calculation-Most Fair & Equitable Not Used
- Falsification of Records

**Notes:**
These are some of the High Dollar findings we identified in FY 2007

Improper/Undocumented Dependency Overrides

Pell- Ineligible Pell Disbursements

Ability to Benefit Violations: Schools  must properly document student file, tests must be administered by independent approved tester, tests cannot be altered or scored incorrectly, test results in student file must match those from the Independent Approved Testing Agency. 
Refunds Calculation-Most Fair & Equitable Not Used

Falsification of Records

## PR Findings-High Dollar (cont.)

- Improper Certification of FFEL
- Ineligible Program-Approval Requirements Not Met
- Verification Violations
- Pell-Overpayment/Underpayment
- Fed Perkins Prom Note-Missing, Unsigned, Inaccurate

**Notes:**
Additional high dollar findings.

Improper Certification of FFEL

Ineligible Program-Approval Requirements Not Met 

Verification Violations

Pell-Overpayment/Underpayment

Fed Perkins Prom Note-Missing, Unsigned, Inaccurate

## FSA Assessments

- Includes Assessment Modules on Students, Schools, Managing Funds, and Policies and Procedures
- _http://www.ifap.ed.gov/qahome/fsaassessment.html_

**FSA Assessments**

## Method of Payment

- Advanced Funding – Most Schools Receive Title IV thru the Method
- HCM 1–FSA Uses This Restriction Generally w/Financial Failure & Requires Additional Financial Reporting & Disbursements First
- HCM 2 – More Strict Used w/Administrative Capability Concerns (Permits FSA to Sample Submission)
- Reimbursement – Similar to HCM2 (No Sampling) Major Program Integrity Concerns

## Program Compliance	              		    	   School Eligibility 

**Victoria Edwards, Chief Compliance Officer– DC (202) 377-4275****	****    Robin Minor, General Manager – Wash DC (202) 377-3173**
- Call the appropriate School Participation Team for information and guidance on audit resolution, financial analysis, program reviews, school and program eligibility/recertification and school closure information.

_**School Participation Teams – Northeast**_
**Geneva Leon, Director – Wash DC**
**(202) 377-3173  geneva.leon@ed.gov**
_**New York**__**/**__**Boston**_ (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, New Jersey, New York, Puerto Rico, Virgin Islands)
**William Swift – New York (646) 428-3750**
**Rosemary Torpey - Boston (617) 289-0133****Elizabeth Coughlin-New York (646) 428-3737****Patrice Fleming - Wash DC (202) 377-4209**
_**Philadelphia**_ (DC, Delaware, Maryland, Pennsylvania, Virginia, West Virginia)
**Nancy Gifford - Philadelphia (215) 656-6442**
**John Loreng – Philadelphia (215) 656-6437**
**Michael Frola - Wash DC (202) 377-3364**** **
_**Foreign Schools**_
**Barbara Hemelt - Wash DC (202) 377-3168**

_**School Participation Teams-South Central**_
**Carolyn White, Director – Wash DC **
**(202) 377-3173  carolyn.white@ed.gov**
_**Atlanta**_ (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina)
**Charles Engstrom - Atlanta  (404) 562-6315****Christopher Miller – Atlanta (404) 562-6304**
**Patricia Dickerson-Wash DC (202) 377-4218**
_**Dallas**_ (Arkansas, Louisiana, New Mexico, Oklahoma, Texas)
**Patrick Kennedy - Dallas (214) 661-9490**
**Janet Dragoo - Dallas (214) 661-9481****Clifton Knight - Wash DC (202) 377-4244**
_**Kansas City**_ (Iowa, Kansas, Kentucky, Missouri, Nebraska, Tennessee)
**Ralph LoBosco-Kansas City (816) 268-0410****Dvak Corwin – Kansas City (816) 268-0420**
**Phillip Brumback-Wash DC (202) 377-3464**
** **

_**School Participation Teams - Northwest**_
**Douglas Laine, Director – Wash DC **
**(202) 377-3173  douglas.laine@ed.gov**
_**Chicago**_ (Illinois, MN, Ohio, Wisconsin, IN)
**Douglas Parrott - Chicago (312) 730-1532**
**David Heath – Chicago (312) 730-1522 ****Earl Flurkey – Chicago (312) ****730-1521**
_**Denver**_ (Colorado, Michigan, Montana, North Dakota, South Dakota, Utah, Wyoming)
**Harry Shriver - Denver (303) 844-3677 x116**
**Dan Whiting - Denver (303) 844-3677 x120**
_**San Francisco/Seattle**_ (American Samoa, Arizona, California, Guam, Hawaii, Nevada, Palau, Marshall Islands, N. Marianas State of Micronesia, Alaska, Idaho, Oregon, Wash.)
**Linda Henderson- San Fran (415)-486-5609**
**Martina Fernandez-Rosario (415)-486-5605**
**Dyon Toney - Wash DC (202) 377-3639**

## Handy Websites

- Students Portal: _[www.studentaid.ed.gov](http://www.studentaid.ed.gov/)_
- Information for Financial Aid Professionals:  _[www.ifap.ed.gov](http://www.ifap.ed.gov/)_
- School & Program Eligibility/Recertification: _[http://www.eligcert.ed.gov](http://www.eligcert.ed.gov/)_

**Handy Websites**

## We appreciate your feedback & comments

- Douglas Parrott (312) 730-1532
- _d__[ouglas.parrott@ed.gov](mailto:ouglas.parrott@ed.gov)_
- Geneva Leon (202) 377-3173 _[geneva.leon@ed.gov](file:///../Local%20Settings/Temporary%20Internet%20Files/Local%20Settings/nancy.paula.gifford/Local%20Settings/Temporary%20Internet%20Files/Local%20Settings/Temporary%20Internet%20Files/OLK16/geneva.leon@ed.gov)_

***Happy Holidays!!***