June 2001 The Blue Book 5-1

Accounting Procedures for

Title IV Programs

Summary

Accounting procedures for federally funded student financial assistance

programs are extremely important responsibilities for institutions participating in

Title IV programs. This chapter deals primarily with recommended accounting

procedures for institutions. The aim is to help schools identify any areas of

difficulty and potential weaknesses in their fiscal management systems. At the

same time, schools can identify those areas that are being managed properly and

ensure that proper accounting and bookkeeping procedures are performed.

This chapter is a general guide; it is not intended to replace accounting standards

established by the American Institute of Certified Public Accountants (AICPA),

Financial Accounting Standards Board (FASB), Governmental Accounting

Standards Board (GASB), or the concept of generally accepted accounting

principles (GAAP).

account number

accounts receivable

asset account

asset reduction account

budget item

capital account

capital reduction account

chart of accounts

checks and balances

clear audit trail

credit

data-input controls

debit

Direct Loan School Account

Statement (DLSAS)

Direct Loan Servicing Center

(DLSC)

electronic data processing (EDP)

expense account

fund accounting

general ledger

income account

internal control system

journal entry

ledger account

liability account

Loan Origination Center (LOC)

memo journal entry

program balance

reconciliation

restricted funds

revenue account

separation of functions

trial balance

Key Terms*

Chapter

5

*Key terms are in boldface type when they first appear in the text.
The Blue Book June 2001 5-2

Chapter 5

5.1 Institutional Financial Management Systems

An institution’s financial management system must provide effective control

over and accountability for all funds received from the U.S. Department of

Education’s (ED’s) Grant Administration and Payment System (GAPS). At a

minimum, the institution’s system must provide:

♦ accurate, current, and complete disclosure of the financial status of each

federal aid program or project sponsored by ED;

♦ records that adequately identify the source and application of funds for

sponsored activities and contain information on institutional awards,

authorizations, obligations, unobligated balances, assets, income,

liabilities, revenues, expenditures, and cash disbursements;

♦ effective control over and accountability for all funds, property, and

other assets, including adequate safeguarding of all such assets to ensure

that they are used solely for authorized purposes;

♦ comparison of actual expenditure amounts with amounts budgeted for

each Title IV program;

♦ procedures to ensure the efficient transfer of funds when they are

advanced through electronic methods (these procedures must limit the

time between the transfer of funds from the U.S. Treasury and cash

disbursement by the institution to students so that it is no later than three

business days following the receipt of funds);

♦ procedures according to the applicable terms of the Title IV program for

determining reasonableness, allowability, and allocability of costs;

♦ accounting records that are supported by audit trail documentation; and

♦ examinations in the form of external or internal audits, which must be

made according to generally accepted auditing standards and government

auditing standards.

5.2 Bookkeeping and Recordkeeping

An effective institutional financial aid program requires a cooperative effort

among all school offices involved in delivering financial aid to students. Separate

reporting and recordkeeping responsibilities required of each office, as well as

shared responsibilities, are detailed in Chapter 2.

 Reference:

• 34 CFR 668, Subpart K

 Reference:

• See Chapter 2 of this

book for more

information about

recordkeeping

requirements.
June 2001 The Blue Book 5-3

Accounting Procedures for Title IV Programs

The business office is responsible for most financial accounting and

recordkeeping, except for detailed records and files on individual financial aid

recipients that must be kept in the financial aid office. The remainder of this

chapter is designed to help the business office satisfy its accounting

responsibilities efficiently and with a minimum of effort.

The following flowchart gives an overview of recordkeeping within an

institution’s financial aid office from initial documents through final reports.

As illustrated in the flowchart, a student or parent submits documents in a paper

format. The school has the option of storing these documents in a paper format

or an imaged format. However, the school is required to electronically report to

ED certain aspects of its Title IV program management system. If a school uses

paper files, collecting the required data in an electronic format could be difficult.

Records to be maintained include:

♦ a student’s application for financial aid (Free Application for Federal

Student Aid [FAFSA]);

♦ a student’s master promissory note (MPN) or parent’s

application/promissory note for a Federal Family Education Loan

(FFEL) or a Federal Direct Loan, if it applies*;

♦ a copy of the school’s award notification to the student;

*Schools that

serialize loans under

one initial MPN may

not be required to

collect a MPN each

award year.

 Reference:

• See Chapter 2 of this

book for more

information about

recordkeeping

requirements.
The Blue Book June 2001 5-4

Chapter 5

♦ an “authorization to disburse” record from the financial aid office to the

business office*;

♦ the record of financial aid received to date by students, broken out by

each Title IV program;

♦ the student’s eligible noncitizen documentation (if it applies);

♦ the student’s ability-to-benefit documentation (if it applies);

♦ the student’s financial aid transcript (if required)**;

♦ the school’s Fiscal Operations Report and Application to Participate

(FISAP) and supporting documentation;

♦ the school’s Direct Loan reconciliation reports (if it applies);

♦ the student’s Student Aid Report (SAR) or Institutional Student

Information Record (ISIR), in the format it was received from ED; and

♦ the student’s verification data (if it applies).

Bookkeeping and recordkeeping systems should be designed to:

♦ enable timely internal and external financial reporting,

♦ ensure proper filing of applications, and

♦ create accurate final reports, as well as to meet documentation

requirements for various Title IV financial aid programs.

When designing an accounting system, the chart of accounts, books of original

entry, billing, reporting requirements, and other financial aid information should

all be taken into consideration.

♦ For example, the numerous ledger accounts set up for an institution’s

Federal Perkins Loan fund are created to assist the school in

preparing year-end reports that must be filed with ED. The

institution can simply copy the information from its ledgers to the

electronic FISAP format supplied by ED just before closing entries at

the end of the award year. This procedure does not allow for

destroying original documentation, but it does permit quick and

accurate reference to needed information.

*This part of the

checks-and-balances

process is normally

built into automated

financial aid systems.

As a result, schools

with automated

systems are not

required to keep

paper documentation

of this on file.

**Schools now have

the option to query

the National Student

Loan Data System

(NSLDS) to research

a student’s financial

aid history. Starting

on July 1, 2001,

schools may also do

this for students who

transfer mid-year.
June 2001 The Blue Book 5-5

Accounting Procedures for Title IV Programs

The flowchart below gives an overview of the accounting activities within an

institution’s business office, from initial documents through final reports. (The

business office may also maintain Direct Loan reconciliation reports at some

schools.) With this system in mind, staff members can see how the entire system

fits together and how the journal entries fit into the system. Examples of initial

documents maintained in the business office and posted to ledger accounts

include:

♦ cash receipts,

♦ checks, and

♦ original journals.

An important general ledger account is Student Accounts Receivable; each

individual student’s school account is a subsidiary of this account. A sample

student account is shown on the next page.
The Blue Book June 2001 5-6

Chapter 5

5.3 Accounting

A school’s financial accounting system must meet internal and external

information needs. The organizational structure of the accounting system should

be designed to accommodate both of these venues.

Accounting Principles (Fund Accounting)

Fund accounting is the method of segregating assets into categories according

to restrictions placed on their use by a funding source. When designing a chart of

accounts, institutions need to consider their fund-accounting needs, particularly

with respect to restricted funds or funds that are initially restricted. The chart

of accounts should accurately reflect the school’s current organization and

programs, and it should have the flexibility to accommodate any future changes

in the organization.

Sample Student Account Receivable Card:

 Tom Sawyer, Fall 2001

Date Item Description Debits

(Charges)

Credits Balance

09/07/01 Tuition 12 Credit

Hours

$2,000 $0 $2,000

09/07/01 Room Dorcas Hall $2,500 $0 $4,500

09/07/01 Board The Commons $3,000 $0 $7,500

09/07/01 Aid Merit Scholar $0 $2,000 $5,500

09/07/01 Aid Perkins Loan $0 $1,000 $4,500

09/07/01 Aid Stafford Loan $0 $2,300 $2,200

 Balance Due: $2,200
June 2001 The Blue Book 5-7

Accounting Procedures for Title IV Programs

Chart of Accounts

As an aid in discussing records and accounting techniques for financial aid

programs, the following summary chart of accounts lists accounts considered

necessary for institutions to account properly for Title IV program funds. These

accounts may be set up in either a manual or automated accounting system.

Either system will need the basic suggested ledger accounts to meet ED’s

minimum program and fiscal requirements, as well as the institution’s external

reporting requirements, such as basic financial statements and fund statements.

Such a system will serve to meet the accounting needs of the institution, ED, and

other federal agencies. Additional accounts may be added as deemed necessary

by the institution. These accounts should be reviewed at least annually to

determine if additions or deletions are necessary to meet changes in federal

regulations.

The chart of accounts is a primary internal-control mechanism delineating the

framework of the accounts. This chart has two components: (1) a fund number

and (2) an account number that usually follows a standard account-code

structure (a definition, by name, of the account code). A uniform numbering

scheme is used here to assist in identifying the parts of the financial statements

on which ledger accounts are located. The numbers assigned to these ledger

accounts are arbitrarily assigned, but in sequential order, and these specific

numbers are not required to put these ledgers in place in institutional accounting

systems.

In all cases, the first digit of an account number identifies an element of the

financial statements, as follows:

1 - Asset Account

2 - Asset Reduction Account

3 - Liability Account

4 - Capital Account (or Program Balance)

5 - Capital Reduction Account

6 - Income Account (or Revenue Account)

7 - Expense Account

Each federal student financial aid program contains some or all of the elements

of the financial statements outlined here. Each is self-balancing and is separated

completely from other programs and from the general operating fund of the

institution. Within each program, the sum of ledger accounts with debit

balances equals the sum of ledger accounts with credit balances.
The Blue Book June 2001 5-8

Chapter 5

In the following Summary Chart of Accounts, award authorizations are not

shown. It is recommended that they be booked as a memo journal entry or

budget item. Then, as award authorizations are adjusted, appropriate

adjustments to budget figures would be entered. This process helps ensure that

drawdown amounts do not exceed authorization levels.

Note: The GAPS account shown in the Summary Chart of Accounts,

account # 1-2 (Accounts Receivable, GAPS) is used only if an institution does

not use the reimbursement payment method for drawing down Title IV funds.

The accounting for the reimbursement method will not be covered here.

However, account # 1-2 should be booked as any other account receivable.

Each respective subsidiary ledger would also book the receivable.

Summary Chart of Accounts

GAPS Accounts (Title IV Funds Only, Not Including Direct Loans)

To help in calculating excess cash and interest earnings on Title IV aid funds

(Federal Pell Grant, FSEOG, FWS, and Federal Perkins Programs) and, in

accordance with cash management regulations issued on December 1, 1994,

separate GAPS accounts should be established for Title IV aid funds and for

non-Title IV aid funds. In addition, because Direct Loan Program funds are not

reported on GAPS and use a separate GAPS account number, the funds would

not be included in either of these separate accounts.

1 - Asset Accounts

1 - 1 Cash Control, GAPS

1 - 2 Accounts Receivable, GAPS

3 - Liability Accounts - None

4 - Capital Accounts - None

6 - Income Accounts - None*

7 - Expense Accounts - None*

National Finance Center (NFC) Accounts

NFC accounts are needed to reflect amounts of Title IV program funds

disallowed after the program authorization account has been closed (removed

from GAPS).

1 - Asset Accounts

1 - 1 Cash Unremitted to NFC

1 - 2 Due from School

3 - Liability Accounts

 3 – 1 Accounts Payable, NFC

*GAPS is the only

case in which

income and expense

ledgers are not

maintained.
June 2001 The Blue Book 5-9

Accounting Procedures for Title IV Programs

4 - Capital Accounts - None

6 - Income Accounts - None

7 - Expense Accounts - None

Federal Pell Grant Accounts

1 - Asset Accounts

1 - 1 Cash, Federal Pell Grants

3 - Liability Accounts - None

4 - Capital Accounts - None

6 - Revenue Accounts

6 - 1 Transfer from GAPS - Federal Pell Grants for Students

6 - 2 Federal Reimbursement of Pell Grant Administrative

Cost Allowance (ACA)

7 - Expense Accounts

7 - 1 Student Grants Paid - Federal Pell Grant

7 - 2 Administrative Cost Allowance (ACA) Paid to Institution

Federal Supplemental Educational Opportunity Grant (FSEOG) Accounts

1 - Asset Accounts

1 - 1 Cash, FSEOG

3 - Liability Accounts - None

4 - Capital Accounts - None

6 - Income Accounts

6 - 1 Transfer from GAPS - FSEOG

6 - 2 Institution’s Cash Contribution

6 - 3 Institution’s NonCash Contribution (Memo Account)

7 - Expense Accounts

7 - 1 Student Grants Paid - FSEOG

7 - 2 Student Grants - FSEOG from NonCash Contribution

(Memo Account)

7 - 3 Administrative Cost Allowance (ACA) Paid to Institution 

(if applicable)

Federal Work-Study (FWS) Accounts

1 - Asset Accounts

1 - 1 Cash, Federal Work-Study

1 - 2 Accounts Receivable, Off-Campus Entities
The Blue Book June 2001 5-10

Chapter 5

3 - Liability Accounts

3 - 1 Federal Income Taxes Withheld

3 - 2 Social Security Taxes Withheld

3 - 3 State Income Taxes Withheld

3 - 4 Other Withholdings

3 - 5 Accrued Wages Payable

3 - 6 Employer’s Payroll Taxes Payable

4 - Capital Accounts - None

6 - Income Accounts

6 - 1 Transfer from GAPS - Federal Work-Study

6 - 2 Institution’s Cash Contribution

6 - 3 Institution’s NonCash Contribution (Memo Account)

6 - 4 Off-Campus Employer’s Contribution, Public/Private

Nonprofit Entities

6 - 5 Off-Campus Employer’s Contribution, Private For-Profit

Entities

7 - Expense Accounts

7 - 1 Student Wages - On-Campus

7 - 2 Student Wages - On-Campus, NonCash Contribution for

Nonfederal Share (Memo Account)

7 - 3 Student Wages - Off-Campus, Public/Private Nonprofit 

Entities

7 - 4 Student Wages - Off-Campus, Private For-Profit Entities

7 - 5 Regular Job Location and Development (JLD) Expenses 

Paid to Institution

7 - 6 Administrative Cost Allowance (ACA) Paid to Institution

Federal Perkins Loan Accounts

1 - Asset Accounts

1 - 1 Cash, Federal Perkins Loans

1 - 2 Funds Advanced to Students*

2 - Asset Reduction Accounts

2 - 1 Loan Principal Collected

2 - 2 Defaulted Loan Principal - Assigned to Federal Government

2 - 3 Loan Principal Canceled - Teaching Service (10% Rate), 

Loans Made Prior to 7/1/72

2 - 4 Loan Principal Canceled - Teaching Service (15% Rate), 

Loans Made Prior to 7/1/72

2 - 5 Loan Principal Canceled - Military Service (12.5% Rate), 

Loans Made Prior to 7/1/72

2 - 6 Loan Principal Canceled - Teaching Service (15% Rate), 

Loans Made 7/1/72 and After

2 - 7 Loan Principal Canceled - Teaching Service (20% Rate), 

Loans Made 7/1/72 and After

*If the institution

tracks funds

advanced to

students who are out

of school, this

information may be

placed as a footnote

to the subsidiary

ledger.
June 2001 The Blue Book 5-11

Accounting Procedures for Title IV Programs

2 - 8 Loan Principal Canceled - Teaching Service (30% Rate), 

Loans Made 7/1/72 and After

2 - 9 Loan Principal Canceled - Teaching Service (Field of 

Expertise: Math, Science, Foreign Language, Bilingual 

Education) (15% Rate), Loans Made 7/23/92 and After

2 - 10 Loan Principal Canceled - Teaching Service (Field of 

Expertise: Math, Science, Foreign Language, Bilingual 

Education) (20% Rate), Loans Made 7/23/92 and After

2 - 11 Loan Principal Canceled - Teaching Service (Field of 

Expertise: Math, Science, Foreign Language, Bilingual 

Education) (30% Rate), Loans Made 7/23/92 and After

2 - 12 Loan Principal Canceled - Military Service (12.5% Rate), 

Loans Made 7/1/72 and After

2 - 13 Loan Principal Canceled - Death

2 - 14 Loan Principal Canceled - Disability

2 - 15 Loan Principal Canceled - Bankruptcy

2 - 16 Loan Principal Canceled - Peace Corps or VISTA

(15% Rate)

2 - 17 Loan Principal Canceled - Peace Corps or VISTA

(20% Rate)

2 - 18 Loan Principal Canceled - Head Start (15% Rate)

2 - 19 Loan Principal Canceled - Volunteer Service

(15% Rate)

2 - 20 Loan Principal Canceled - Volunteer Service

(20% Rate)

2 - 21 Loan Principal Canceled - Law Enforcement and 

Corrections Officer Service (15% Rate)

2 - 22 Loan Principal Canceled - Law Enforcement and 

Corrections Officer Service (20% Rate)

2 - 23 Loan Principal Canceled - Nurse/Medical Technician 

 (15% Rate)

2 - 24 Loan Principal Canceled - Nurse/Medical Technician 

 (20% Rate)

2 - 25 Loan Principal Canceled - Nurse/Medical Technician 

 (30% Rate)

2 - 26 Loan Principal Canceled - Child/Family and Early 

Intervention Service (15% Rate)

2 - 27 Loan Principal Canceled - Child/Family and Early 

Intervention Service (20% Rate)

2 - 28 Loan Principal Canceled - Child/Family and Early 

Intervention Service (30% Rate)

2 - 29 Loan Principal Canceled for Loans Discharged Due to 

Closed Schools

2 - 30 Loan Principal Adjustments - Other
The Blue Book June 2001 5-12

Chapter 5

3 - Liability Accounts* - None

4 - Capital Accounts

4 - 1 Federal Fund Balance

4 - 2 Institutional Fund Balance

6 - Income Accounts

6 - 1 Funds Transferred from GAPS - Perkins - FCC

6 - 2 Funds Transferred from Institution - Perkins - ICC

6 - 3 Interest Earned on Loans

6 - 4 Other Earnings - Late Charges on Loans Made

7/1/87 and After

6 - 5 Other Earnings - Miscellaneous

6 - 6 Reimbursement of Amounts Canceled on Loans Made

7/1/72 and After

6 - 7 Repayments to Federal Government

6 - 8 Repayments to Institution

7 - Expense Accounts

7 - 1 Litigation Expenses

7 - 2 Administrative Cost Allowance (ACA) Paid to Institution

7 - 3 Other Collection Expenses

7 - 4 Cost of Loan Principal and Interest Canceled - Teaching 

Service, Loans Made Prior to 7/1/72

7 - 5 Cost of Loan Principal and Interest Canceled - Teaching 

Service, Loans Made 7/1/72 and After

7 - 6 Cost of Loan Principal and Interest Canceled - Military 

Service, Loans Made Prior to 7/1/72

7 - 7 Cost of Loan Principal and Interest Canceled - Teaching 

Service (Field of Expertise: Math, Science, Foreign 

Language, Bilingual Education), Loans Made 7/23/92

and After

7 - 8 Cost of Loan Principal and Interest Canceled - Military 

Service, Loans Made 7/1/72 and After

7 - 9 Cost of Loan Principal and Interest Canceled - Death

7 - 10 Cost of Loan Principal and Interest Canceled - Disability

7 - 11 Cost of Loan Principal and Interest Canceled - 

Bankruptcy

7 - 12 Cost of Loan Principal and Interest Canceled - Peace 

 Corps or VISTA

7 - 13 Cost of Loan Principal and Interest Canceled - Head 

Start

7 - 14 Cost of Loan Principal and Interest Canceled - Volunteer 

Service

7 - 15 Cost of Loan Principal and Interest Canceled - Law 

Enforcement and Corrections Officer Service

7 - 16 Cost of Loan Principal and Interest Canceled -

Nurse/Medical Technician

*Current accounting

includes Federal

Capital Contributions

(FCCs) as a liability

rather than as capital

since these amounts

are to be repaid to

the federal

government.
June 2001 The Blue Book 5-13

Accounting Procedures for Title IV Programs

7 - 17 Cost of Loan Principal and Interest Canceled -

Child/Family and Early Intervention Service

7 - 18 Cost of Defaulted Loan Principal and Interest Assigned

to Federal Government

7 - 19 Other Costs or Losses

William D. Ford Federal Direct Loan (Direct Loan) Accounts

1 - Asset Accounts

1 - 1 Cash, Direct Loans

1 - 2 Accounts Receivable, GAPS

3 Liability Accounts - None

4 - Capital Accounts - None

6 - Income Accounts

6 - 1 Income from GAPS - Direct Loans

7 - Expense Accounts

7 - 1 Funds Advanced to Borrowers

Electronic Funds Transfer (EFT) of Federal Family Education Loan (FFEL) Funds from

Lenders to the Institution

1 - Asset Accounts

1 - 1 Cash, FFEL Account

1 - 2 Cash, Returned to Lenders

1 - 3 Cash, Disbursed to Borrowers

1 - 4 Cash, Interest Earnings

3 - Liability Accounts

3 - 1 FFEL Trust Account

4 - Capital Accounts - None

6 - Income Accounts

6 - 1 Interest Earnings from Investment of FFEL Funds

7 - Expense Accounts - None

GAPS Title IV Accounts

1 - 1 Cash Control, GAPS: This account may be a debit or credit balance account

depending on the timing of drawdowns and disbursements. It is established to

identify the balance of federal cash disbursed to a school through GAPS. The

system described here segregates federal cash by using separate accounts for

GAPS Title IV-funded programs. These separate GAPS accounts allow

reconciliation of funds sent and/or available through GAPS. Separate checking

accounts need not be maintained for each program as long as school records

indicate precisely where cash was used.

 Reference:

• See Section 4.5 of this

book.
The Blue Book June 2001 5-14

Chapter 5

Debit this account for:

♦ All cash received from GAPS for all Title IV programs, except Direct

Loans payment for origination services, Pell Grants ACA reimbursement,

or Perkins Loan cancellation reimbursements (contra account # 1-2).

♦ All unexpended cash on programs when accountability has been

transferred to NFC (contra account # 1-2).

Credit this account with:

♦ All cash transferred to programs.

♦ Excess cash billings paid to National Finance Center (NFC) (contra

account # 1-2).

1 - 2 Accounts Receivable, GAPS: This account can be a debit or credit balance

account depending on the timing of disbursements and drawdowns. It

represents all amounts due from all open-status GAPS-funded programs.* The

debit balance may exist between the time funds are requested from GAPS and

the time they are received.

Debit this account for:

♦ Amount of awards disbursed to students and recorded as income

transferred from GAPS in each respective Title IV program account.

Credit this account for:

♦ Cash received from GAPS (contra account # 1-1).

♦ Any unexpended program balances after accountability has been

transferred to NFC (contra account # 1-1).

National Finance Center (NFC) Accounts

1 - 1 Cash Unremitted to NFC: This account is used to reflect that a portion of

cash is no longer under GAPS accountability; the accountability has been

transferred to the National Finance Center (NFC).

This cash is segregated when a grant’s final closing amount is in dispute.

Accounting for the funds here reflects a transfer of accountability from GAPS.

If more than one program is in dispute, separate subsidiary accounts should be

set up for each program. Disallowed expenditures on open, current-year GAPS

accounts are recorded by reclassifying those expenditures from the specific

program account to institutional accounts and then reinstating that same amount

from the Title IV program account to the GAPS account.

*A different

accounting treatment

is needed if an

institution uses the

reimbursement

payment method for

drawing down Title IV

funds.
June 2001 The Blue Book 5-15

Accounting Procedures for Title IV Programs

Debit this account for:

♦ Cash received from the institution for disallowed expenditure (contra

account # 1-2).

♦ Interest earnings on Title IV funds that exceed the regulatory threshold

(contra account # 3-1).

Credit this account with:

♦ Amounts remitted to NFC (contra account # 3-1).

1 - 2 Due from School: This debit balance account reflects amounts due from the

school as a result of disallowed expenditures on closed accounts not under

GAPS accountability.

Debit this account for:

♦ Billings from NFC for expenditures disallowed by program review or

audit, excess cash, and the like (contra account # 3-1).

Credit this account for:

♦ Cash received from the institution (contra account # 1-1).

3 - 1 Accounts Payable, NFC: This account is normally a credit balance account

that reflects any liabilities to NFC as a result of cash accountability separated

from GAPS as described earlier or disallowed expenditures on programs not

under GAPS accountability or excess interest earnings returnable to ED through

NFC.

Debit this account for:

♦ Amounts remitted to NFC (contra account # 1-1).

Credit this account with:

♦ Billings from NFC (contra account # 1-2).

♦ Interest earnings returnable to NFC (contra account # 1-1).

Federal Pell Grant Accounts

1 - 1 Cash, Federal Pell Grants: All receipts and disbursements of cash related to

the Pell Grant Program are recorded in this account. Typically, this account

would show a zero balance after each period’s entries are posted, as the transfer

of funds from GAPS should equal only the amount of grants to be paid

immediately to students.
The Blue Book June 2001 5-16

Chapter 5

Debit this account for:

♦ Transfers from GAPS account (contra account # 6-1).

♦ Recoveries from recipients (contra account # 7-1).

Credit this account with:

♦ Payments to students (contra account # 7-1).

6 - 1 Transfer from GAPS - Federal Pell Grants for Students: This credit balance

account controls the transfer of cash from the GAPS account

“Cash Control, GAPS” to the Pell Grant account “Cash, Federal Pell Grants.”

Such cash transfers should be made only in the precise amounts needed

immediately to pay grants to students.

Debit this account for:

♦ Closing entry at end of accounting fiscal year, the total amount of cash

transferred from GAPS account to meet disbursement needs for the

period (contra account # 7-1).

Credit this account with:

♦ Cash transferred from GAPS account to meet current disbursement

needs (contra account # 1-1).

6 - 2 Federal Reimbursement of Pell Grant Administrative Cost Allowance (ACA): This

credit balance account is used to deposit the reimbursements received by

electronic funds transfer (EFT) from ED for Pell ACA.

Debit this account for:

♦ Closing entry at end of accounting fiscal year for the amount of Pell ACA

reimbursements (contra account # 7-2).

Credit this account with:

♦ ACA payments received via EFT from ED (contra account # 1-1).

7 - 1 Student Grants Paid - Federal Pell Grant: This debit balance account is

maintained to record payments made to students for Pell Grants.

Debit this account for:

♦ Grant payments made to students (contra account # 1-1).

Credit this account with:

♦ Recoveries from recipients (contra account # 1-1).

 Reference:

• See Section 4.2 of this

book.
June 2001 The Blue Book 5-17

Accounting Procedures for Title IV Programs

♦ Closing entry at end of accounting fiscal year for the total amount of

grant payments made to students for the accounting period (contra

account # 6-1).

7 - 2 Administrative Cost Allowance (ACA) Paid to Institution: This debit balance

account is maintained to record payments made to the institution for

administrative costs. This amount cannot exceed the amount set by regulations.

Debit this account for:

♦ ACA paid to the institution (contra account # 1-1).

Credit this account with:

♦ Closing entry at the end of the accounting period (contra account

# 6-2).

Federal Supplemental Educational Opportunity Grant (FSEOG) Accounts

1 - 1 Cash, FSEOG: All receipts and disbursements of cash related to the

Federal Supplemental Educational Opportunity Grant (FSEOG) Program are

recorded in this account. Typically, this account shows a zero balance after each

period’s entries are posted, as the transfer of funds from GAPS should be only

for the amount of grants to be paid to students immediately and for

administrative expenses.

Debit this account for:

♦ Transfers from GAPS account (contra account # 6-1).

♦ Cash contributions of the institution (contra account # 6-2).

Credit this account with:

♦ Payments to students (contra account # 7-1).

♦ Payments to institution for administrative cost allowance (contra account

# 7-3).

6 - 1 Transfer from GAPS - FSEOG: This revenue account is maintained to

control the transfer of cash from the GAPS account “Cash Control, GAPS” to

the FSEOG account “Cash, FSEOG.” Such transfers of cash should be made

only in the precise amounts needed to pay awards and ACA (if applicable) on a

current basis.

Debit this account for:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 7-1, 7-3).
The Blue Book June 2001 5-18

Chapter 5

Credit this account with:

♦ Amounts of cash transferred from the GAPS account to meet the federal

share of current FSEOG grants (contra account # 1-1).

6 - 2 Institution’s Cash Contribution: This credit balance account is maintained to

record cash contributions made by the institution to provide (together with any

noncash contribution) the nonfederal share of FSEOG grants.

Debit this account for:

♦ Closing entry at end of accounting fiscal year (contra account

# 7-1).

Credit this account with:

♦ Amounts of cash provided by the institution to pay its share of current

FSEOG grants (contra account # 1-1).

6 - 3 Institution’s Noncash Contribution (Memo Account): This credit balance account

is maintained to record noncash contributions made by the institution to provide

(together with any cash contribution) the required nonfederal share of FSEOG

grants.

Debit this account for:

♦ Closing entry, the cash value of all tuition rebates or similar credits to

student accounts as the nonfederal share of FSEOG awards at end of

accounting fiscal year (contra account # 7-2).

Credit this account with:

♦ Noncash contributions provided from institutional resources to pay the

nonfederal share of current FSEOG grants, including payments made

directly to students from institutional funds (contra account

# 7-2).

7 - 1 Student Grants Paid - FSEOG: This expense account is maintained to help

prepare required FSEOG Program reports. If the institution transfers cash to

provide the required percent of the federal share, then this account would record

both the federal and nonfederal shares of FSEOG grants. The debit balance in

this account combined with account # 7-2, before closing, should agree with the

sum of the individual award amounts shown in student records as FSEOG

grants for the current year.

Debit this account for:

♦ Payments to students for FSEOG grants (contra account # 1-1).

 Reference:

• See Section 2.10 of this

book for information on

student master records .
June 2001 The Blue Book 5-19

Accounting Procedures for Title IV Programs

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra account

# 6-1).

7 - 2 Student Grants - FSEOG From Noncash Contributions (Memo Account): This

expense account is used if the institution makes noncash contributions and pays

students a portion of their FSEOG grants directly from institutional resources.

Debit this account for:

♦ Payments to students for FSEOG grants from institutional resources

(contra account # 6-3).

Credit this account for:

♦ Closing entry at end of accounting fiscal year (contra account

# 6-3).

7 - 3 Administrative Cost Allowance (ACA) Paid to Institution (if applicable): This

expense account is used to record ACA as it is paid to the institution. Such

payments are limited by regulations and may not be made from FSEOG funds

unless students received FSEOG funds during the period.

Debit this account for:

♦ Payments to institution for administrative expenses (contra account

# 1-1).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra account

# 6-1).

Federal Work-Study (FWS) Accounts

1 - 1 Cash, Federal Work-Study: All receipts and disbursements of cash related to

the Federal Work-Study (FWS) Program are recorded in this account. Any debit

balance remaining after payroll payment should consist solely of institutional

and/or off-campus employer funds, as federal funds should be transferred from

the GAPS Cash Control Account (GAPS account # 1-1) only in the precise

amount needed for the federal share of current disbursements.

Debit this account for:

♦ Federal contributions transferred from GAPS account (contra account #

6-1).

♦ Cash contributions of the institution (contra account # 6-2).

 Reference:

• See Section 4.2 of this

book.
The Blue Book June 2001 5-20

Chapter 5

♦ Cash payments of off-campus employers (contra account # 1-2).

♦ Cash paid into fund by the institution for later payment of employer’s

share of payroll taxes (contra account # 3-6).

♦ Cash contributions paid by the institution for off-campus employers that

have not paid their nonfederal share (contra account # 1-2).

Credit this account with:

♦ Federal share of on-campus compensation and federal and nonfederal

shares of off-campus compensation to students

(contra accounts # 3-5, 7-3, 7-4).

♦ Administrative expenses paid to the institution (contra account

# 7-6).

♦ Refund of contribution to the institution (contra account # 6-2).

♦ Refund of contribution to off-campus employers (contra account

# 1-2).

♦ Payment for compensation withheld (contra accounts # 3-1, 3-2,

3-3, 3-4).

♦ Payment of employer’s payroll taxes (contra account # 3-6).

♦ Job Location and Development Program expenses paid to the institution

(contra account # 7-5).

1 - 2 Accounts Receivable, Off-Campus Entities: This account is used to record the

amounts due from off-campus employers for the nonfederal share of student

wages. Separate subsidiary accounts should be set up for each off-campus entity.

Debit this account for:

♦ Amounts to be provided by off-campus employers to pay the required

percent of the nonfederal share of wages of students employed off

campus (contra accounts # 6-4, 6-5).

♦ Refunds to off-campus employers of excess cash contributions (contra

account # 1-1).

Credit this account for:

♦ Cash paid by off-campus employers (contra account # 1-1).

♦ Cash paid by institution for off-campus employers that have not paid

their nonfederal share (contra account # 1-1).
June 2001 The Blue Book 5-21

Accounting Procedures for Title IV Programs

3 - 1 Federal Income Taxes Withheld

3 - 2 Social Security Taxes Withheld*

3 - 3 State Income Taxes Withheld

3 - 4 Other Withholdings

If withholding is necessary, these accounts are used to record the tax amounts

withheld from the pay of students employed under the Federal Work-Study

Program.

Debit these accounts for:

♦ Taxes paid to the appropriate agency for federal income taxes, Social

Security taxes (when applicable), state income taxes, and other taxes

(contra account # 1-1).

Credit these accounts with:

♦ Amounts withheld from students’ pay for payment of federal income

taxes, Social Security taxes (when applicable), state income taxes, and

other taxes (contra accounts # 7-1, 7-3, 7-4).

3 - 5 Accrued Wages Payable: This account is used to accumulate student wages

earned but not paid by the end of a report period. This is necessary because the

Federal Work-Study portion of the FISAP report requires compensation earned

during the reporting period to be reported, regardless of when it is paid. The

drawdown of cash from the GAPS Cash Control Account is on a cash basis, and

funds are not drawn down until accrued wages have actually been disbursed

(paid).

Debit this account for:

♦ Amounts of gross compensation earned in the previous reporting period

and paid during the current period (contra account # 1-1).

Credit this account with:

♦ Gross compensation earned, but not yet paid at the end of the reporting

period (contra accounts # 7-1, 7-2, 7-3, 7-4).

3 - 6 Employer’s Payroll Taxes Payable: This credit balance account is maintained to

record the amount of payments due by the institution for the employer’s share of

payroll taxes on accounts of students employed under the Federal Work-Study

Program. Federal Work-Study funds may not be used to pay any portion of such

taxes. At some schools, the employer’s share of payroll taxes is handled directly

from the general fund, and off-campus employers’ payments for their share of

payroll taxes are reimbursed to the general fund rather than transferring the

*Both half-time and

full-time students

working in FWS jobs

do not need to pay

FICA if they are

employed on campus.
The Blue Book June 2001 5-22

Chapter 5

amount into the FWS fund. In this case, account # 3-6 would not be needed in

the FWS set of accounts.

Debit this account for:

♦ Amounts of payroll taxes paid (contra account # 1-1).

Credit this account with:

♦ Amounts of payroll taxes payable from cash amounts transferred by the

institution or off-campus employers to pay their share of payroll taxes

(contra account # 1-1).*

6 - 1 Transfer from GAPS - Federal Work-Study: This credit balance account

controls the transfer of cash from the GAPS account, “Cash Control, GAPS” to

the FWS account, “Cash, Federal Work-Study.” Such transfers of cash should

be made only in the precise amounts needed for the federal share of current

payroll, plus administrative expenses and Job Location and Development

Program expenses. No transfer of cash should occur until the federal share of

the currently payable payroll has been calculated.

Debit this account for:

♦ The federal share of wages earned (contra accounts # 7-1, 7-3, 7-4).

♦ Administrative expenses paid to the institution (contra account

# 7-6).

♦ Job Location and Development Program expenses paid to the institution

(contra account # 7-5).

Credit this account with:

♦ Amounts of cash transferred from the GAPS account “Cash Control,

GAPS” to meet current disbursement needs (contra account # 1-1).

6 - 2 Institution’s Cash Contribution: This credit balance account is used only if the

institution transfers cash to provide the required percent of the nonfederal share

of student wages on campus, then pays both the federal share and nonfederal

shares of campus wages from these accounts.

Debit this account for:

♦ Refund to the institution of excess cash advances (contra account

# 1-1).

♦ Closing entry, the nonfederal share (that is, the share for which Federal

Work-Study funds are not available) of cash wages paid to students

employed on campus (contra account # 7-1).

*Note: A student

may be exempt from

tax withholding while

enrolled. However, if

the student is

employed between

terms or in the

summer, when the

student is not

enrolled, withholding

must be made.

 Reference:

• See Section 4.2 of this

book.
June 2001 The Blue Book 5-23

Accounting Procedures for Title IV Programs

Credit this account with:

♦ Amounts of cash provided by the institution to pay its share of

on-campus student wages (contra account # 1-1).

6 - 3 Institution’s Noncash Contribution (Memo Account): This credit balance account

records the amount of wages “paid” to students by the institution through

tuition rebates and other such noncash means, as well as amounts paid directly to

students from institutional funds.

Debit this account for:

♦ Closing entry, the cash value of all tuition rebates or similar credits to

student accounts made by the institution during the reporting period as

its share of on-campus student wages (contra account # 7-2).

Credit this account with:

♦ Each pay period, the cash value of all tuition rebates or similar credits to

student accounts as its share of on-campus student wages (contra

account # 7-2).

6 - 4 Off-Campus Employer’s Contribution, Public/Private Nonprofit Entities

6 - 5 Off-Campus Employer’s Contribution, Private For-Profit Entities

These credit balance accounts are maintained to record contributions due from

off-campus employers to provide the required percent (or more) of the

nonfederal share of student wages earned off campus.

Debit these accounts for:

♦ Closing entry, nonfederal share (that is, the share for which Federal

Work-Study funds are not available) of wages paid to students employed

off campus (contra accounts # 7-3, 7-4).

Credit these accounts with:

♦ Amounts to be provided by off-campus employers to pay the required

percent of the nonfederal share of wages of students employed off

campus (contra account # 1-2).

7 - 1 Student Wages - On-Campus: This expense account is maintained to record

the federal share of Federal Work-Study wages. If the institution transfers cash

to provide the required percent of the federal share, then this account would

record both the federal and nonfederal shares of wages. This account may be

further subdivided into categories such as instruction, research, public service,

and so on, to facilitate nonfederal functional reporting.
The Blue Book June 2001 5-24

Chapter 5

Debit this account for:

♦ The federal share of wages earned by students in on-campus employment

from the first day to the last day of the reporting period (posted from

payroll vouchers, adjusted as necessary for accruals) (contra accounts

# 1-1, 3-1, 3-2, 3-3, 3-4, 3-5).

Credit this account with:

♦ Closing entry for the federal share of wages earned on campus (contra

account # 6-1).

7 - 2 Student Wages - On-Campus, Noncash Contribution for Nonfederal Share (Memo

Account): This expense account is maintained to record the nonfederal share of

student wages paid from the institution’s tuition rebates or similar credits.

Debit this account for:

♦ The nonfederal share of wages “paid” to students through tuition rebates

and other noncash means (contra account # 6-3).

Credit this account for:

♦ Closing entry for, the nonfederal share of wages earned on campus

(contra account # 6-3).

7 - 3 Student Wages - Off-Campus, Public/Private Nonprofit Entities

7 - 4 Student Wages - Off-Campus, Private For-Profit Entities

These expense accounts are maintained to help prepare required Federal WorkStudy Program reports.

Debit these accounts for:

♦ Gross amount of wages earned by students in off-campus employment

from the first day to the last day of the reporting period (posted from

payroll vouchers, adjusted as necessary for accruals) (contra accounts

# 3-1, 3-2, 3-3, 3-4, 3-5).

Credit these accounts with:

♦ Closing entry for the nonfederal share of wages earned off campus

(contra accounts # 6-4, 6-5).

7 - 5 Regular Job Location and Development (JLD) Expenses Paid to Institution: This

expense account is maintained to record payments made to the institution for

Job Location and Development (JLD) Program expenses. This amount cannot

exceed the lesser of $50,000 or 10 percent of the institution’s Federal WorkStudy (FWS) authorization for the award year to locate and develop off-campus
June 2001 The Blue Book 5-25

Accounting Procedures for Title IV Programs

jobs, including community-service jobs. Jobs located or developed under the

program may be for either a for-profit or nonprofit employer. A school is not

allowed to use its JLD allocation to locate on-campus service jobs. The federal

funds that a school sets aside from its FWS allocation to be used for JLD

activities may be used to pay up to 80 percent of allowable costs. The school

must provide the remaining 20 percent of allowable costs, either in cash or

services.

Debit this account for:

♦ Amounts paid to the institution (contra account # 1-1).

Credit this account with:

♦ Closing entry at the end of the accounting period, the amounts paid to

the institution during the reporting period (contra account # 6-1).

7 - 6 Administrative Cost Allowance (ACA) Paid to Institution: This expense account

is maintained to record payments made to the institution in reimbursement for

administrative expenses. Such payments to the institution have totals limited by

regulations, and they may not be made from FWS funds unless students earned

FWS wages during the period.

Debit this account for:

♦ Payments to institution for administrative expenses (contra account

# 1-1).

Credit this account with:

♦ Closing entry at the end of the accounting period, the total amount paid

to the institution during the reporting period (contra account # 6-1).

Federal Perkins Loan Accounts

1 - 1 Cash, Federal Perkins Loans: This is a debit balance account that shows the

total cash available.

Debit this account for:

♦ Federal Capital Contributions (FCCs) as transferred from GAPS cash

(contra account # 6-1).

♦ Institutional Capital Contributions (ICCs) as transferred from

institutional cash (contra account # 6-2).

♦ Refunds of amounts advanced to students (contra account # 1-2).

♦ Collections of loan principal from borrowers (contra account # 2-1).

 Reference:

• See Section 3.3 of this

book.
The Blue Book June 2001 5-26

Chapter 5

♦ Collections of loan interest from borrowers (contra account # 6-3).

♦ Collections of late charges assessed (contra account # 6-4).

♦ Collections of penalty charges assessed (contra account # 6-5).

♦ Other income (contra account # 6-5).

♦ Reimbursements from the U.S. government on loan cancellations (contra

account # 6-6).

♦ Repayments from borrowers for litigation expenses (contra account

# 7-1).

♦ Collections of borrower-paid collection costs from gross-remittance

collection agencies (contra account # 7-3).

Credit this account with:

♦ Advances to students (contra account # 1-2).

♦ Overpayments refunded to borrowers (contra account # 2-1).

♦ Reversals of payments made by returned check (contra accounts

# 2-1, 6-3, 6-4, 6-5, 7-3).

♦ Repayments of capital to the U.S. government (contra account

# 6-7).

♦ Repayments of capital to the institution (contra account # 6-8).

♦ Withdrawals of late charges payable to the institution (contra account

# 6-4).

♦ Withdrawals to pay litigation expenses (contra account # 7-1).

♦ Withdrawals for administrative cost allowance (contra account # 7-2).

♦ Withdrawals to pay collection costs to gross-remittance collection

agencies (contra account # 7-3).

♦ Withdrawals to pay other collection expenses (contra account # 7-3).
June 2001 The Blue Book 5-27

Accounting Procedures for Title IV Programs

1 - 2 Funds Advanced to Students: This debit balance account is a control account

for advances to borrowers. The total of the amounts shown as advances on

individual student master records for all students should be reconciled to the

balance in this account at the end of each month.

Debit this account for:

♦ The amount advanced to borrowers (contra account # 1-1).

Credit this account with:

♦ Any return of advances made (contra account # 1-1).

2 - 1 Loan Principal Collected: This is a credit balance account maintained to show

the total amount of loan principal collected since the beginning of the program.

Debit this account for:

♦ The principal amount of returned checks (contra account # 1-1).

♦ Overpayments refunded to borrowers (contra account # 1-1).

Credit this account with:

♦ The amount of cash collections related to loan principal (contra account

# 1-1).

♦ Reclassification of the amount of interest paid that is subsequently

canceled (contra account # 2-1).

2 - 2 Defaulted Loan Principal - Assigned to Federal Government: This credit balance

account is maintained to show the cumulative amount of defaulted loan principal

assigned to and accepted by the U.S. government.

Debit this account for:

♦ No entries, except for correcting errors.

Credit this account with:

♦ The amount of loan principal assigned to and accepted by the

U.S. government on loans in default (contra account # 7-18).

2 - 3 Loan Principal Canceled - Teaching Service (10% Rate), Loans Made Prior to

7/1/72

2 - 4 Loan Principal Canceled - Teaching Service (15% Rate), Loans Made Prior to

7/1/72

 Reference:

• See Section 2.10 of this

book.
The Blue Book June 2001 5-28

Chapter 5

2 - 5 Loan Principal Canceled - Military Service (12.5% Rate), Loans Made Prior to

7/1/72

Accounts # 2-3, 2-4, and 2-5 may be merged and maintained as one account

titled “Loan Principal Canceled - Loans Made Prior to 7/1/72.”

2 - 6 Loan Principal Canceled - Teaching Service (15% Rate), Loans Made 7/1/72 and

After

2 - 7 Loan Principal Canceled - Teaching Service (20% Rate), Loans Made 7/1/72 and

After

2 - 8 Loan Principal Canceled - Teaching Service (30% Rate), Loans Made 7/1/72 and

After

2 - 9 Loan Principal Canceled - Teaching Service (Field of Expertise:

Math, Science, Foreign Language, Bilingual Education) (15% Rate), Loans Made 7/23/92

and After

2 - 10 Loan Principal Canceled - Teaching Service (Field of Expertise: Math, Science,

Foreign Language, Bilingual Education) (20% Rate), Loans Made

7/23/92 and After

2 - 11 Loan Principal Canceled - Teaching Service (Field of Expertise: Math, Science,

Foreign Language, Bilingual Education) (30% Rate), Loans Made

7/23/92 and After

2 - 12 Loan Principal Canceled - Military Service (12.5% Rate), Loans Made

7/1/72 and After

2 - 13 Loan Principal Canceled - Death

2 - 14 Loan Principal Canceled - Disability

Accounts # 2-13 and 2-14 may be merged and maintained as one account titled

“Loan Principal Canceled - Death or Disability.”

All other canceled-loan entries are similar and are not shown here. Refer to the

chart of accounts for the other cancellation accounts.

These separate cancellation accounts are maintained to show the cumulative

amounts of loan principal canceled under the provisions of the law.

Debit these accounts for:

♦ No entries, except for correcting errors.

 Reference:

• See Section 5.3 of this

book.
June 2001 The Blue Book 5-29

Accounting Procedures for Title IV Programs

Credit these accounts with:

♦ Amounts of each appropriate category of loan principal canceled under

the provisions of the law (contra accounts # 7-4 through 7-17).

2 - 29 Loan Principal Adjustments - Other: This is a credit balance account

maintained to show the cumulative total amount of loan principal lost because of

other reasons (such as write-offs) as specified by ED. Each credit entry to this

account should be adequately labeled to identify the reason for the adjustment.

Debit this account for:

♦ No entries, except for correcting errors.

Credit this account with:

♦ Amount of loan principal lost because of other approved reasons (writeoffs) (contra account # 7-19).

4 - 1 Federal Fund Balance: This is a credit balance account maintained to show

the federal share of the fund balance.

This account should always show a credit balance for the federal share of income

and expenses since the school began participating in the program.

Credit this account with:

♦ Closing entry at end of accounting fiscal year (federal share of contra

accounts # 6-1, 6-3 through 6-7, 7-1 through 7-19).

4 - 2 Institutional Fund Balance: This credit balance account is maintained to show

the institutional share of the fund balance. This account should always show a

credit balance for the institutional share of income and expenses since the school

began participating in the program.

Credit this account with:

♦ Closing entry at end of accounting fiscal year (institutional share of

contra accounts # 6-2 through 6-6, 6-8 through 7-19).

6 - 1 Funds Transferred from GAPS - Perkins - FCC: This credit balance account is

maintained to track the total FCC transferred to the Perkins Loan fund from the

GAPS cash control account.

Debit this account for:

♦ Closing entry at end of accounting fiscal year (contra account

# 4-1).
The Blue Book June 2001 5-30

Chapter 5

Credit this account with:

♦ Transfer from GAPS - FCC (contra account # 1-1).

6 - 2 Funds Transferred from Institution - Perkins - ICC: This credit balance account

is maintained to track the total ICC transferred to the Perkins Loan fund from

the institution.

Debit this account for:

♦ Closing entry at end of accounting fiscal year (contra account # 4-2).

Credit this account with:

♦ Mandatory transfers of the institution’s matching share of the Perkins

Loan allocation. This is one-third (33 1/3 percent) of the FCC amount or

one-quarter (25 percent) of the combined FCC plus ICC

(contra account # 1-1).

6 - 3 Interest Earned on Loans: This credit balance account is maintained to show

the total interest that has been collected or has been canceled because of teaching

service, military service, death, or any other authorized cancellation. It also

includes interest from loans assigned to ED.

Debit this account for:

♦ The interest amount of returned checks and correction of errors (contra

account # 1-1).

♦ Reclassification of the interest amount paid that is subsequently canceled

(contra account # 2 -1).

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

Credit this account with:

♦ The amount of loan interest collected (contra account # 1-1).

♦ The amount of loan interest canceled for teaching service

(contra accounts # 7-4, 7-5).

♦ The amount of loan interest canceled for Teaching Service (Field of

Expertise: Math, Science, Foreign Language, Bilingual Education), Loans

Made 7/23/92 and After (contra account # 7-7).

♦ The amount of loan interest canceled for military service

(contra accounts # 7-6, 7-8).
June 2001 The Blue Book 5-31

Accounting Procedures for Title IV Programs

♦ The amount of loan interest canceled for death (contra account

# 7-9).

♦ The amount of loan interest canceled for disability (contra account

# 7-10).

♦ The amount of loan interest canceled for bankruptcy (contra account

# 7-11).

♦ The amount of loan interest canceled for Peace Corps or VISTA (contra

account # 7-12).

♦ The amount of loan interest canceled for Head Start (contra account

# 7-13).

♦ The amount of loan interest canceled for Volunteer Service (contra

account # 7-14).

♦ The amount of loan interest canceled for Law Enforcement and

Corrections Officer (contra account # 7-15).

♦ The amount of loan interest canceled for Nurse/Medical Technician

(contra account # 7-16).

♦ The amount of loan interest canceled for Child/Family and Early

Intervention Service (contra account # 7-17).

♦ The amount of loan interest related to defaulted loans assigned to the

U.S. government (contra account # 7-18).

♦ The amount of loan interest written off for other costs or losses (specify)

(contra account # 7-19).

6 - 4 Other Earnings - Late Charges on Loans Made 7/1/87 and After: This credit

balance account is maintained to show the earnings of the fund due to late

charges assessed on loans made after 7/1/87.

Debit this account for:

♦ Late charge amounts reimbursed to the institution (contra account

# 1-1).

♦ Late charge amounts of returned checks (contra account # 1-1).

♦ Late charge amounts for correcting errors.

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).
The Blue Book June 2001 5-32

Chapter 5

Credit this account with:

♦ Late charges assessed and collected (contra account # 1-1).

♦ Amounts reimbursed by the institution for the late charge portion of

returned checks (contra account # 1-1).

♦ Late charges accrued and written off (contra account # 7-18).

6 - 5 Other Earnings - Miscellaneous: This credit balance account is maintained to

show the earnings of the fund (other than interest on student loans or late

charges assessed on loans made 1/1/86 and after), such as penalty charges on

loans made 12/31/85 and before, and interest earned on fund cash balances. As

it will be necessary to report separately on each type of earnings (penalty charges,

interest, earnings, and so on), a subsidiary ledger account for each type of

earnings is desirable. There may be periods when slack demand for loans,

coupled with funds received for collection activities, might produce a temporary

excess cash balance in the Perkins Loan fund; as a result, institutions are now

required to maintain fund balances in insured interest-bearing accounts.

Debit this account for:

♦ Penalty charges for returned checks (contra account # 1-1).

♦ Correcting errors.

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

Credit this account with:

♦ Penalty charges assessed and collected (contra account # 1-1).

♦ Interest earned on fund cash (contra account # 1-1).

♦ Any other earnings of the fund (contra account # 1-1).

♦ Penalty charges accrued and written off (contra account # 7-19).

6 - 6 Reimbursement of Amounts Canceled on Loans Made 7/1/72 and After: This

credit balance account is maintained to show the amounts received from the U.S.

government as a result of reimbursements on loans canceled for teaching (Head

Start) and military service on loans made 7/1/72 and after, for Peace Corps or

VISTA service for loans made after 6/30/87, for employment in law

enforcement or as a corrections officer for loans made on or after 11/29/90, and

for all cancellations authorized by the 1992 reauthorization of the Higher

Education Act (HEA).

 Reference:

• See Section 4.5 of this

book.
June 2001 The Blue Book 5-33

Accounting Procedures for Title IV Programs

Debit this account for:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

Credit this account with:

♦ Amounts received from the U.S. government for reimbursement of the

aggregate amount of institutional funds plus federal funds canceled due

to any of the authorized cancellation provisions (contra account # 1-1).

6 - 7 Repayments to Federal Government: This debit balance account is maintained to

show the total distribution of fund capital in case of partial dissolution of the

Perkins Loan fund.

Debit this account for:

♦ Amount of the appropriate FCC repaid in partial dissolution of the fund

(contra account # 1-1).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra account

# 4-1).

6 - 8 Repayments to Institution: This debit balance account is maintained to show

the total distribution of fund capital in case of partial dissolution of the Perkins

Loan fund and to show when an institution withdraws an overmatch.

Debit this account for:

♦ Amount of the appropriate ICC repaid in partial dissolution of the fund

(contra account # 1-1).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra account

# 4-2).

7 - 1 Litigation Expenses: This is a debit balance account maintained to show the

net amount paid for litigation arising in connection with Federal Perkins Loans.

Debit this account for:

♦ Amounts paid for litigation expenses (contra account # 1-1).

Credit this account with:

♦ Amounts collected from borrowers repaying litigation expenses (contra

account # 1-1).
The Blue Book June 2001 5-34

Chapter 5

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 2 Administrative Cost Allowance (ACA) Paid to Institution: This is a debit balance

account maintained to show the amount of administrative expenses charged to

the fund rather than reimbursement to the institution by ED. Such payments to

the institution are limited in total by regulations and may not be made from the

Perkins Loan fund unless students receive advances of Perkins Loan funds

during the award period.

Debit this account for:

♦ Amounts charged to the fund as authorized administrative cost allowance

(ACA) (contra account # 1-1).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 3 Other Collection Expenses: This is a debit balance account maintained to

show the net amount charged to the fund for collection expenses other than

costs of litigation, such as commissions (as approved by the U.S. Secretary of

Education) paid to a collection agency.

Debit this account for:

♦ Amounts authorized to be charged to the fund as other collection

expenses (contra accounts # 1-1 or 2-1).

♦ Amount of borrower-paid collection cost portion of returned checks

(contra account # 1-1).

Credit this account with:

♦ Amounts collected from borrowers repaying costs of collection other

than litigation expenses (contra account # 1-1).

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 4 Cost of Loan Principal and Interest Canceled - Teaching Service, Loans Made Prior to

7/1/72

7 - 5 Cost of Loan Principal and Interest Canceled - Teaching Service, Loans Made 7/1/72

and After

These debit balance accounts are maintained to show the total cost of loan

cancellations for teaching service.

 Reference:

• See Section 3.3 of this

book.
June 2001 The Blue Book 5-35

Accounting Procedures for Title IV Programs

Debit these accounts for:

♦ Amounts of total principal and interest canceled for teaching service

(contra accounts # 2-3, 2-4, 2-6, 2-7, 2-8, 6-3).

Credit these accounts with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 6 Cost of Loan Principal and Interest Canceled - Military Service, Loans Made Prior to

7/1/72

7 - 7 Cost of Loan Principal and Interest Canceled - Teaching Service (Field of Expertise:

Math, Science, Foreign Language, Bilingual Education), Loans Made 7/23/92 and After

These debit balance accounts are maintained to show the total cost of loan

cancellations for military and teaching service.

Debit these accounts for:

♦ Amounts of total principal and interest canceled for these specific service

areas (contra accounts # 2-5, 2-9, 2-10, 2-11, 6-3).

Credit these accounts with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 8 Cost of Loan Principal and Interest Canceled - Military Service

7/1/72 and After

This debit balance account is maintained to show the total cost of loan

cancellations for military service.

Debit this account for:

♦ Amounts of total principal and interest canceled for military service

(contra accounts # 2-12, 6-3).

Credit these accounts with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 9 Cost of Loan Principal and Interest Canceled - Death: This is a debit balance

account maintained to show the total cost of loan cancellations for death.
The Blue Book June 2001 5-36

Chapter 5

Debit this account for:

♦ Amounts of total principal and interest canceled for death (contra

accounts # 2-13, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 10 Cost of Loan Principal and Interest Canceled - Disability: This is a debit balance

account maintained to show the total cost of loan cancellations for disability.

Debit this account for:

♦ Amounts of total principal and interest canceled for disability (contra

accounts # 2-14, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 11 Cost of Loan Principal and Interest Canceled - Bankruptcy: This is a debit

balance account maintained to show the total cost of loan cancellations for

bankruptcy.

Debit this account for:

♦ Amounts of total principal and interest canceled for bankruptcy (contra

accounts # 2-15, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 12 Cost of Loan Principal and Interest Canceled - Peace Corps or VISTA: This is a

debit balance account to show the total cost of principal and interest canceled for

service in the Peace Corps or VISTA for loans made after June 30, 1987.

Debit this account for:

♦ Amounts of total principal and interest canceled for service in the Peace

Corps or VISTA (contra accounts # 2-16, 2-17, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).
June 2001 The Blue Book 5-37

Accounting Procedures for Title IV Programs

7 - 13 Cost of Loan Principal and Interest Canceled - Head Start: This is a debit

balance account to show the total cost of principal and interest canceled for the

Head Start Program.

Debit this account for:

♦ Amounts of total principal and interest canceled for the Head Start

Program (contra accounts # 2-18, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 14 Cost of Loan Principal and Interest Canceled - Volunteer Service: This is a debit

balance account to show the total cost of principal and interest canceled for

volunteer service.

Debit this account for:

♦ Amounts of total principal and interest canceled for volunteer service

(contra accounts # 2-19, 2-20, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 15 Cost of Loan Principal and Interest Canceled - Law Enforcement and Corrections

Officer: This is a debit balance account to show the total cost of principal and

interest canceled for borrowers employed in law enforcement or corrections.

Debit this account for:

♦ Amounts of total principal and interest canceled for a borrower’s

employment as a law-enforcement or corrections officer (contra accounts

# 2-21, 2-22, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 16 Cost of Loan Principal and Interest Canceled - Nurse/Medical Technician: This is a

debit balance account to show the total cost of principal and interest canceled for

a borrower’s employment as a nurse or medical technician.
The Blue Book June 2001 5-38

Chapter 5

Debit this account for:

♦ Amounts of total principal and interest canceled for a borrower’s

employment as a nurse or medical technician (contra accounts

# 2-23, 2-24, 2-25, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 17 Cost of Loan Principal and Interest Canceled - Child/Family and Early Intervention

Service: This is a debit balance account to show the total cost of principal and

interest canceled for a borrower’s employment in a child/family or early

intervention service.

Debit this account for:

♦ Amounts of total principal and interest canceled for the child/family or

early intervention service (contra accounts # 2-26, 2-27,

2-28, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 18 Cost of Defaulted Loan Principal and Interest Assigned to Federal Government:

This is a debit balance account maintained to show the total cost of defaulted

loans assigned to, and accepted by, the U.S. government.

Debit this account for:

♦ Amounts of total principal and interest related to defaulted loans

assigned to the U.S. government (contra accounts # 2-2, 6-3).

Credit this account with:

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

7 - 19 Other Costs or Losses: This is a debit balance account maintained to show

the total amount of other costs or losses. Any entries to this account, such as

accounts written off, should have full documentation of the reasons. In some

cases, approval by the U.S. Secretary of Education must be included as part of

the documentation.
June 2001 The Blue Book 5-39

Accounting Procedures for Title IV Programs

Debit this account for:

♦ Amounts of total principal, interest, penalty, and late charges written off

because of other costs or losses. The reason for the write-off should be

specified for easy identification in the account (contra accounts # 2-29,

6-3, 6-4, 6-5).

Credit this account with:

♦ Amounts of previous write-offs reversed due to collection

(contra accounts # 2-29, 6-3, 6-4, 6-5).

♦ Closing entry at end of accounting fiscal year (contra accounts

# 4-1, 4-2).

William D. Ford Federal Direct Loan Accounts

1 - 1 Cash, Direct Loans: All receipts and disbursements of cash related to the

Direct Loan Program are recorded in this account.

Debit this account for:

♦ Transfers from GAPS accounts (contra account # 6-1).

♦ Recoveries from recipients (contra account # 7-1).

Credit this account for:

♦ Payments to students (contra account # 7-1).

♦ Return of excess cash to Direct Loan Servicing Center or to ED via

FEDWIRE (contra account # 6-1).

1 - 2 Accounts Receivable, GAPS: This debit balance account controls the transfer

of cash directly from the GAPS account established for Direct Loans.

Debit this account for:

♦ Amounts due from GAPS for disbursement needs for the period (contra

account # 6-1).

♦ Return of excess cash (contra account # 1-1).

Credit this account with:

♦ Cash transferred directly from the GAPS account (contra account # 1-1).

6 - 1 Income from GAPS - Direct Loans: This credit balance account reflects the

income from the Direct Loan Program. This amount is not a transfer from the

GAPS account referred to in section 5.3. These separate accounts allow for
The Blue Book June 2001 5-40

Chapter 5

reconciliation with the institution’s records as part of the Direct Loan

reconciliation process.

Debit this account for:

♦ Closing entry at end of accounting fiscal year, the income from

GAPS to meet disbursement needs for the period (contra accounts 

# 7-1, 7-2).

Credit this account with:

♦ Income from GAPS recorded to meet current disbursement needs

(contra account # 1-2).

6 - 2 Federal Reimbursement of Direct Loan Origination Services Costs: This credit

balance account is maintained to record the reimbursements from ED for

origination services costs. Currently, funds come directly to the institution via

ACH/EFT and are deposited directly to the institution’s bank account. This

amount is set by law.

Debit this account for:

♦ Closing entry at end of the accounting period (contra account

# 7-2).

Credit this account with:

♦ ACH/EFT payments for ED for origination services costs (contra

account # 1-1).

7 - 1 Funds Advanced to Borrowers: This debit balance account is maintained to

record payments made to students or parents for loans. This account may be

further subdivided to separate disbursements for PLUS, subsidized, and

unsubsidized loans.

Debit this account for:

♦ Loan payments made to students or students’ parents (contra account

# 1-1).

Credit this account with:

♦ Recoveries from loan recipients (contra account # 1-1).

♦ Closing entry at end of accounting fiscal year for the total amount of loan

disbursements made to students or students’ parents for the accounting

period (contra account # 6-1).
June 2001 The Blue Book 5-41

Accounting Procedures for Title IV Programs

Accounting Practices for EFT: Federal Family Education Loan

(FFEL) Program

1 - 1 Cash, FFEL Account: All receipts and disbursements of Federal Family

Education Loan (FFEL) funds are recorded in this account. These funds are not

part of the GAPS system, as the funds come directly from lenders to the

institution by lenders’ EFT systems.

♦ Debit - Cash received from lenders (contra account # 3-1).

1 - 2 Cash Returned to Lenders: This account is used to account for funds returned

to lenders and is separate from funds disbursed to students.

♦ Credit - Cash returned to lenders (contra account # 3-1).

1 - 3 Cash Disbursed to Borrowers: This account shows funds actually disbursed to

students or parents for loans.

♦ Credit - Cash disbursed to borrowers (contra account # 3-1).

1 - 4 Cash - Interest Earnings: This account may be used to record interest

earnings from investing the float on FFEL funds. Institutions may decide to

deposit the interest earnings directly into an operating account.

♦ Debit - For interest earned (contra account # 6-1).

♦ Credit - Interest earnings from investment of FFEL funds transferred to

the institution (contra account # 6-1).

3 - 1 FFEL Trust Account: This account is used to record funds that the

institution holds for borrowers.

♦ Debit - Funds disbursed to borrowers or returned to lenders (contra

accounts # 1-2 or 1-3).

♦ Credit - Funds received from lenders (contra account # 1-1).

6 - 1 Interest Earnings from Investment of FFEL Funds: The institution must closely

adhere to required time frames for disbursing funds and returning undisbursed

funds.

♦ Debit - Cash, interest earnings transferred to the institution (contra

account # 1-4).

♦ Credit - Interest earnings from investment of FFEL funds (contra

account # 1-4).
The Blue Book June 2001 5-42

Chapter 5

5.4 Internal Control: Checks and Balances

To participate in federally funded student financial aid programs, an institution

must be able to demonstrate that adequate checks and balances are in place in

its internal control system. An internal control system should, at a minimum,

include:

♦ separating the functions of authorizing and awarding Title IV aid and

disbursing Title IV program funds;

♦ taking a trial balance (to determine whether accounts are in balance);

♦ reconciling cash (a reconciliation between book balances and bank

balances for cash);

♦ reconciling federal funds (a reconciliation between bank accounts and

federally reported balances for cash); and

♦ maintaining adequate electronic data processing (EDP) controls.

Separation of Functions

A school, as part of proving its administrative capability, should use its internal

audits or external audits to periodically verify that the systems of checks and

balances in place at the school have been properly designed and are being

followed routinely. This is established by developing systems at a school that

ensure Title IV program funds are being distributed according to the appropriate

regulations.

Appropriate controls can include developing a disbursing system that provides

evidence that the institution maintained documentation to show that aid was

appropriately applied to institutional charges and that remaining aid was

delivered to the student.

According to regulations, institutions must separate the functions of authorizing

payment of Title IV aid and disbursing Title IV funds. Separation of functions

is a fundamental control concept in financial aid administration. The financial

aid office is charged with the responsibility for authorizing disbursement by

awarding aid through the need analysis and packaging processes. The awardedaid information is then turned over to the business office which, in turn, is

responsible for disbursing the aid by applying it to institutional charges (for

example, posting it on a student’s school account) and/or delivering it to

students (for example, generating a check for a student’s remaining credit

balance).

 Reference:

• See Section 2.4 of this

book for more

information.

 Reference:

• 34 CFR 668.16(c)(2)

 Reference:

• 34 CFR 668.16(c)
June 2001 The Blue Book 5-43

Accounting Procedures for Title IV Programs

There should be a segregation of functions within the business office that

provides that the person within the institution who reconciles cash and

reconciles federal funds does not also receive cash or perform disbursement

functions. The reason: An adequate checks-and-balances system allows several

people within a school to evaluate federal funds and ensure, at each step of the

process, that the applicable regulations are being followed.

The person performing reconciliations should receive bank statements and

Direct Loan reconciliation reports directly from the respective, appropriate

sources. Supervisory approval of the completed reconciliations should also be

obtained and evidenced on the forms.

Trial Balance

A trial balance is the confirmation that debit and credit balances are equal.

A trial balance for federal student financial aid programs is a confirmation that

accounts receivable, program expenditures, and the cash balance equal the

amount of aid that has been authorized by the financial aid office.

To be effective, taking a trial balance should be performed at least monthly and

reconciling cash should be performed when bank statements are received or at

least monthly. All Federal Work-Study, Federal Perkins Loan, and Federal

Direct Loan Program accounts are required to be reconciled monthly.

A trial balance worksheet for federal student financial aid programs appears on

pages 5-48 and 5-49.

Reconciliation of Cash

Since cash is more susceptible to manipulation than other assets, multiple checks

and balances are necessary for effective internal control of cash.

Reconciling cash is a confirmation that the cash amount shown in the school’s

accounting records is in agreement with the amount reflected in the school’s

bank statement. Differences between the school’s accounting records and the

school’s bank statement balance can be caused by timing variances, errors, or

unrecorded entries. The reconciliation process can lead to adjusting entries for:

Remember, because electronic processes can blur

separation of functions, a school must be careful to create

controls that ensure separation of authorizing Title IV

payments and disbursing Title IV payments. This also

applies within the business office itself. One individual

should not be solely responsible for receiving funds and

reconciling those funds.
The Blue Book June 2001 5-44

Chapter 5

♦ bank service charges;

♦ non-sufficient funds (NSF) checks;

♦ debit and/or credit memoranda; and

♦ error corrections.

Reconciliation also provides a means for identifying and correcting these errors.

The person performing the reconciliation should be trained to recognize and

report possible sources of errors:

♦ delays in deposit;

♦ checks outstanding for long periods of time;

♦ irregularities in funds transfers and adjustments; and

♦ deviations with canceled checks (payee, signature, or endorsement).

The prompt and thorough performance of cash reconciliation duties enhances

the internal control system.

On page 5-50 there is a worksheet that can be used, on a monthly basis, to

reconcile cash for Title IV financial aid programs. If a school maintains separate

bank accounts for each program, this process should be performed for each

program.

Reconciling Federal Funds

Reconciling federal funds is a balancing of funds received from the beginning of

a school’s participation in a program to the totals currently recorded in the

school’s accounts. In addition, the reconciliation process should check reported

expenditures among the trial balance, GAPS, FISAP, Direct Loan reconciliation,

and audit reports. Differences among these records must be resolved.

One of the purposes of an internal or external audit is to check that all

reconciliations have been performed. Institutions must not wait until an audit to

perform reconciliations because this is an ongoing process.

The form on page 5-51 can be used to reconcile federal funds.

Monthly Direct Loan Reconciliation

When an institution initially signs up to participate in the Direct Loan Program,

it must decide the “as-of-date” each month that the institution will use to

reconcile loan records with the Loan Origination Center (LOC).
June 2001 The Blue Book 5-45

Accounting Procedures for Title IV Programs

Reconciliation must be performed each month using the same “as-of-date.” In

the Direct Loan Program, there are two types of transactions to be reconciled:

♦ cash transactions and

♦ loan transactions that affect cash.

With cash transactions, the institution must reconcile its records of cash

drawdowns and returns of excess cash with the LOC’s records. To be effective,

the school should first make sure that its own records are reconciled. This means

that the school’s various systems are in agreement (reconciled). These systems

may include:

♦ financial accounting,

♦ student accounts receivable,

♦ financial aid, and

♦ the Direct Loan system (if it applies).*

Loan transactions that have affected cash disbursements and cash adjustments

are also matched with the LOC. The loan transaction process is actually a dataverifying and editing process, primarily between the school’s Direct Loan system

and LOC records. This process matches cash disbursements and cash

adjustments to LOC data.

Each participating Direct Loan institution receives a monthly report, the Direct

Loan School Account Statement (DLSAS), from the LOC detailing:

♦ the school’s beginning cash balance and ending cash balance, according

to the LOC;

♦ the school’s booked (reconciled) loans** and unbooked (unreconciled)

loans;

♦ the amount of cash drawdowns initiated by the school or the LOC (on

the school’s behalf) through GAPS;

♦ the amount of excess cash received for the month from the school; and

♦ any downward or upward adjustments.

Normally, unreconciled items result from timing errors, such as a batch of loan

data that was not included in a month-end close or a batch of loan data that was

shipped to the Direct Loan Servicing Center (DLSC) at the end of the month

and rejected. The institution’s reports from the Direct Loan software and DLSC

reports are used to compare the data in the two systems.

*Some schools

maintain Direct Loan

data within their

financial aid

systems. Those

schools may not

have a separate

Direct Loan system.

**To be considered a

booked loan, the

DLSC must have

received and

accepted a loan

origination record, a

signed promissory

note, and a first

disbursement record.

 Reference:

• See Chapter 6 of this

book for more

information about the

DLSAS.
The Blue Book June 2001 5-46

Chapter 5

Electronic Data Processing (EDP) Controls

Electronic data processing (EDP) controls ensure the integrity and reliability of

data. EDP controls encompass:

♦ operating procedures,

♦ software security,

♦ data access,

♦ program modification,

♦ segregation of computer security duties and responsibilities,

♦ data-backup and data-recovery plans, and

♦ physical computer security.

Specific EDP security controls should include the following:

♦ writing policies and procedures for the security and proper operation of

student information systems, down to the individual user level;

♦ issuing unique user IDs and passwords to each employee to ensure

individual user accountability;

♦ granting appropriate levels of access to staff, which means limiting access

to only the functions necessary to perform assigned duties;

♦ informing authorized users of guidelines for proper system use and

having users acknowledge their responsibilities by signing an

acknowledgement statement;

♦ establishing adequate software-security controls and audit capability to

regularly monitor and record user and system activity; these security

controls should be sufficient to indicate or detect possible misuse, abuse,

or unauthorized activity on the system; and

♦ providing adequate provisions for system and data-file back up,

contingency, disaster recovery, and business resumption.

Other Checks and Balances

There are a number of other types of checks and balances that can be built into a

student financial aid administration system. Some important types are:
June 2001 The Blue Book 5-47

Accounting Procedures for Title IV Programs

♦ data-input controls,

♦ subsidiary records reconciliation, and

♦ a clear audit trail.

Data-input controls: As data-input transactions are being entered into a school’s

financial aid system, a record of the number of entries and the dollar amount of

entries should be recorded. This type of batch control is necessary whether

manual or automated systems are involved. After all updates for a processing

cycle have been completed, the updated totals should be checked to ensure that

all batches (entries) have been entered. This type of control serves two purposes:

It ensures that batches are not lost, and it provides control against unauthorized

transactions being entered into the system.

Subsidiary records reconciliation: All accounts should be backed up by subsidiary

ledger detail. Although a trial balance can be used to ensure that all accounts

balance in the aggregate, it does not guarantee that there is sufficient evidence

that subsidiary records exist to support the totals in each account. Errors can

exist when changes or corrections are made to apply controls to accounts

without corresponding adjustments being made to subsidiary records.

Reconciliations between accounts and subsidiary records detail should be

performed at least monthly and should be conducted on a more frequent basis

during periods of high transaction volume. As mentioned earlier, most Title IV

programs require monthly reconciliations.

Clear audit trail: A key element in any system of checks and balances is

maintaining a clear (easily followed) audit trail. Records of all transactions

entered into the system must be maintained. Adequate documentation requires:

♦ proper approval of all transactions,

♦ a record of who was responsible for entering the transaction,

♦ when the transaction was prepared and posted, and

♦ a complete record of the transaction itself.
The Blue Book June 2001 5-48

Chapter 5

Trial Balance Worksheet for Title IV Programs

Balance as of __________

 Account Names Debit Credit

GAPS

Cash Control, GAPS* xxxxx

Accounts Receivable, GAPS xxxxx

_____ _____

Total, GAPS xxxxx xxxxx

==== ====

NFC Accounts

Cash Unremitted to NFC xxxxx

Due from School xxxxx

Accounts Payable, NFC xxxxx

_____ _____

Total, NFC xxxxx xxxxx

==== ====

Federal Pell Grant Program

Cash, Federal Pell Grants xxxxx

Transfer from GAPS xxxxx

Federal Reimbursement of Pell Administrative Cost Allowance xxxxx

Student Grants Paid xxxxx

Pell Administrative Cost Allowance Paid to Institution xxxxx

_____ _____

Total, Federal Pell Grant Program xxxxx xxxxx

==== ====

Federal Supplemental Educational Opportunity Grant (FSEOG) Program

Cash, FSEOG xxxxx

Transfer from GAPS xxxxx

Institution’s Cash Contribution xxxxx

Institution’s Noncash Contribution (Memo Account) xxxxx

FSEOG Grants Paid xxxxx

FSEOG from Noncash Contribution (Memo Account) xxxxx

FSEOG Administrative Cost Allowance Paid to Institution xxxxx

_____ _____

Total, FSEOG Program xxxxx xxxxx

==== ====

(continued next page)

*The cash-control account will have a credit balance if the drawdown amount is less than the disbursed

amount. The cash control account may have a debit balance if the drawdown amount exceeds the disbursed

amount. Both of these are timing differentials.
June 2001 The Blue Book 5-49

Accounting Procedures for Title IV Programs

Trial Balance Worksheet for Title IV Programs (cont’d)

 Account Names Debit Credit

Federal Work-Study (FWS) Program

Asset Accounts, FWS xxxxx

Liability Accounts, FWS xxxxx

Income Accounts, FWS xxxxx

Expense Accounts, FWS xxxxx

_____ _____

Total, FWS Program xxxxx xxxxx

==== ====

Federal Perkins Loan Program

Asset Accounts, Perkins xxxxx

Asset Reduction Accounts, Perkins xxxxx

Federal Fund Balance xxxxx

Institutional Fund Balance xxxxx

Income Accounts, Perkins xxxxx

Expense Accounts, Perkins xxxxx

_____ _____

Total, Federal Perkins Loan Program xxxxx xxxxx

==== ====

William D. Ford Direct Loan Program

Cash, Federal Direct Loans xxxxx

Accounts Receivable, GAPS xxxxx

Income from GAPS xxxxx

Federal Reimbursement of Direct Loan Origination Services Costs xxxxx

Direct Loan Funds Advanced to Borrowers xxxxx

Payment for Origination Services (POS) Paid to Institution xxxxx

_____ _____

Total, Federal Direct Loan Program xxxxx xxxxx

==== ====

Federal Family Education Loan (FFEL) Program

Cash, FFEL Account xxxxx

Cash Returned to Lenders xxxxx

Cash Disbursed to Borrowers xxxxx

Cash, Interest Earnings xxxxx

FFEL Trust Account xxxxx

Interest Earnings from Investment of FFEL Funds xxxxx

_____ _____

Total, Federal Family Education Loan (FFEL) Program xxxxx xxxxx

==== ====

Prepared by ___________________________________ Date ___________________

Approved by __________________________________ Date ___________________
The Blue Book June 2001 5-50

Chapter 5

Reconciliation of Cash for the Month of _______ Year _____

Beginning Deposits Disburse- Ending

Balance ments Balance

Balance per Bank Statement xxxxx xxxxx xxxxx xxxxx

Deposits in Transit:

 Last Month xxxxx (xxxx) xxxxx

 This Month xxxxx xxxxx

Outstanding Checks:

 Last Month xxxxx (xxxx) xxxxx

 This Month xxxxx xxxxx

Unrecorded Charges xxxxx xxxxx

(Unrecorded Credits) (xxxx) (xxxx)

(explain below)

_____ _____ ______ _____

Balance per Books xxxxx xxxxx xxxxx xxxxx

==== ==== ==== ====

Prepared by ___________________________________ Date ___________________

Approved by __________________________________ Date ___________________
June 2001 The Blue Book 5-51

Accounting Procedures for Title IV Programs

Reconciliation of Federal Funds

for Quarter/Month Ended____

Cumulative Cash as of Last Quarter xxxxx

Cash Received This Quarter xxxxx

_____

Cumulative Cash Received xxxxx

Net Disbursement for Prior Years xxxxx

_____

Changes to Prior Year Disbursements xxxxx xxxxx

_____

Total Adjusted Prior Year Disbursements xxxxx

Net Disbursements This Year xxxxx

_____

Cumulative Cash Disbursements xxxxx (xxxxx)

==== ______

Calculated Cash on Hand xxxxx

Balance per Bank Statement xxxxx

Adjustments:

 Outstanding Checks (xxxxx)

 Deposits in Transit xxxxx

 Other Adjustments xxxxx

Total Adjusted Balance per Bank xxxxx (xxxxx)

==== ______

Difference (should be zero) -0-

=====

Prepared by ___________________________________ Date ___________________

Approved by __________________________________ Date ___________________