Audit of Notre Dame College's compliance with the Title IV, Higher Education Act program requirements.

Published by the Department of Education, Office of Inspector General on 2002-03-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                           U.S. DEPARTMENT OF EDUCATION
                               OFFICE OF INSPECTOR GENERAL
                                     65 Court Street, 12th Floor
                                      Brooklyn, NY 11201
                                             Telephone: 718-935-5803

March 28, 2002
                                                                                   CONTROL NUMBER

Rev. Anthony De Conciliis
Notre Dame College
2321 Elm Street
Manchester, New Hampshire 03104

Dear Rev. De Conciliis:

This Final Audit Report presents the results of our Audit of Notre Dame College's (NDC)
compliance with the Title IV, Higher Education Act (HEA) program requirements1. Our audit
examined: (1) institutional, program, and student eligibility; and (2) cash management and
financial responsibility, for the period July 1, 1999, through March 31, 2001. We expanded the
scope of our audit to July 1, 1997, through March 31, 2001, to review NDC's administration of
the Federal Perkins loan program. We found that NDC generally administered the Title IV
programs appropriately with the exception of its Perkins loan program. In response to a draft
audit report, NDC agreed with our finding and recommendation. A copy of NDC’s response is
provided as an Attachment to this report. NDC will cease operations on June 30, 2002.

                                            AUDIT RESULTS

NDC did not ensure that its Federal Perkins loan servicers2 properly administered the program
during the period, July 1, 1997, through March 31, 2001. Because of staffing problems, NDC
did not properly reconcile internal records with its servicers or the National Student Loan Data
System (NSLDS). Of the 250 students with $329,880 of Perkins loans, 149 (or 59.6 percent) had
errors at the servicer and/or in NSLDS. The Federal Perkins loan program is a campus-based
Federal loan program that provides low interest loans to eligible students. The U.S. Department
of Education tracks these loans through its NSLDS. If the NSLDS does not have accurate loan
data, schools cannot reliably use it to determine eligibility of Title IV aid applicants.

  Title IV HEA program requirements are administered by Federal Student Aid. On March 6, 2002, the Secretary of
Education changed the name of Student Financial Assistance to Federal Student Aid.
  NDC contracted with two servicers, ASFA Data Corporation and University Accounting Service, LLC during the
time of our review. When ASFA Data Corporation's contract ended on February 28, 2001, its information was
transferred to University Accounting Service, LLC.
Rev. Anthony De Conciliis                                                                   Page 2

Institutions Must Account for Perkins Loans and Accurately Report to NSLDS

An institution participating in the Perkins loan program is required to "establish and maintain
program and fiscal records that are reconciled at least monthly." 34 C.F.R. § 674.19(d)(1).3 "An
institution shall retain repayment records, including cancellation and deferment requests, for at
least three years from the date on which a loan is assigned to the Department of Education,
canceled, or repaid.” 34 C.F.R. § 674.19(e)(3). "An institution that contracts for performance of
any duties under this subpart [Perkins loan program] remains responsible for compliance with
the requirements of this subpart . . . ." 34 C.F.R. § 674.48(b).

Dear Colleague Letter CB-94-20 dated August 1994, provides information to schools and
servicers concerning NSLDS requirements. According to the Dear Colleague Letter:

           Schools that participate in the Perkins Loan Program . . . are required to submit
           loan-level data . . . to NSLDS. Schools are responsible for providing the required
           data to the NSLDS for initial and ongoing population. This responsibility
           requires that the school collect the data . . . perform verification edits on the data,
           submit new and changed records . . . correct data errors, and transmit data to
           NSLDS on ED-provided communication lines.

During the period of review, NDC contracted with two servicers to service its Federal Perkins
loan program. Both servicers were responsible for setting up an accounting system for all loan
records upon receipt from the institution and for reporting Perkins loans to NSLDS. NDC did
not properly reconcile all of the Federal Perkins loans from July 1, 1997, to March 31, 2001. We
found seven students with Perkins loans totaling $8,150 not recorded at the current servicer.
These seven students have since repaid their Perkins loans; NSLDS correctly reported four of the
seven students as repaid and incorrectly reported the remaining three. Neither NDC nor the
servicers retained the repayment records for seven students who had paid their Perkins loans.

We also determined that 145 students (58 percent) with Perkins loans totaling $204,300 were not
properly recorded in NSLDS. Specifically,

!      94 students with Perkins loans totaling $98,950 were not recorded in NSLDS;
!      34 students had Perkins loans totaling $59,350 but were recorded in NSLDS as $102,723 (3
       of these students with Perkins loans totaling $4,450 were also not recorded at the servicers);
!      17 students with Perkins loans totaling $46,000 were incorrectly recorded in NSLDS as

Because NDC did not properly reconcile its Perkins records with its servicers and NSLDS data,
NDC allowed inaccurate information to be reported. As a result, NSLDS does not contain
accurate data for determining Title IV eligibility.

    Unless otherwise specified, all regulatory citations are to the June 1, 2000, volume.
Rev. Anthony De Conciliis                                                            Page 3


We recommend that the Chief Operating Officer for Federal Student Aid (FSA) require NDC to
reconcile NDC's Perkins loan records with its servicers and NSLDS data before it ceases

Auditee Comments and OIG Response

NDC concurred with our finding and recommendation. NDC has taken steps to reconcile with
its servicer and NSLDS. NDC will do their best to reconcile before NDC’s planned June 30,
2002 closing. A copy of NDC’s comments is included as an attachment to this letter. The
corrective action planned to be taken by NDC addresses our recommendation.


NDC is a private not-for-profit institution located in Manchester, New Hampshire. Founded in
1950, NDC is a coeducational liberal arts college. The Federal programs available at NDC are:
Pell Grant, Federal Supplemental Educational Opportunity Grant Program, Federal Work-Study,
Perkins Loan, Stafford Subsidized Loan, Unsubsidized Stafford Loan, and Parent Loan for
Undergraduate Students. NDC was awarded $13,048,400 in Title IV during the period July 31,
1999, through March 31, 2001.

NDC has had problems with their Perkins loan program in the past. According to its June 30,
1997, A-133 Audit Report, there were several findings relating to its Federal Perkins loan
program. Specifically, NDC failed to notify its external service organization of new Federal
Perkins loans advanced during the 1996-97 award year; NDC had a Perkins loan cohort default
rate of 50 percent as calculated by its third-party loan servicer; and NDC failed to file a default
reduction plan by December 31, 1997. In the 1998, 1999, and 2000 A-133 Audit Reports, NDC
was cited for having failed to demonstrate administrative capability in the conduct of its Federal
Student Aid (FSA) Programs, specifically, maintaining a cohort default rate of less than 15
percent. For 1998, ED reported a 21 percent cohort default rate for NDC. The 1999 and 2000
A-133 Audit Reports cite NDC’s cohort default rates as 36 and 20 percent, respectively. Lastly,
in an October 8, 1999, letter to NDC's Board of Trustees, NDC's Certified Public Accountant
(CPA) firm stated the Perkins loan activity included in NDC's general ledger did not agree with
the reports issued by NDC's third-party servicer.


The purpose of our audit was to determine whether NDC administered FSA programs according
to laws and regulations applicable to FSA programs authorized by Title IV of the Higher
Education Act of 1965, as amended. We have revised the audit objectives from our draft report
to more accurately reflect the degree of work done with respect to management controls. Our
specific objectives included examining: (1) institutional, program, and student eligibility; and (2)
cash management and financial responsibility.
Rev. Anthony De Conciliis                                                             Page 4

To accomplish our objectives we reviewed NDC's A-133 Audit Reports, Perkins loan servicers'
contracts, selected written FSA accounting and administrative policies and procedures, and the
adequacy of accounting controls. We interviewed key NDC officials and its CPA to develop an
understanding of the management control structure that was relevant and significant to our
objectives. We verified that the institution was properly licensed during the audit period; was
accredited by a recognized agency; had a current participation agreement with the Secretary for
each of its FSA programs; and maintained eligible programs. We reviewed the cash management
and financial responsibility requirements and determined that NDC satisfied the cash
management requirements of 34 C.F.R. § 668.162, and it satisfied the financial responsibility
requirements of 34 C.F.R. § 668.172.

We reviewed financial aid and admission files for 25 randomly selected students from a universe
of 1,016 who received FSA awards from July 1, 1999, to March 31, 2001 to test student
eligibility. To verify the refund process, we also judgmentally selected three students that NDC
reportedly paid refunds from a universe of eight. We verified the program eligibility by
reviewing the NDC’s school catalog, the length of programs, course load requirements, and the
most recent FSA audit reports. We also were able to determine that the programs at NDC are
licensed by the state, NDC maintains appropriate documentation to support its completion and
graduation rates, and the programs are approved by the accrediting agency. In addition, we
judgmentally tested 20 students (10 graduate and 10 undergraduate students) who were enrolled
in one of the certificate programs. We also interviewed NDC’s officials, ED regional FSA
personnel, and the CPAs who performed the FSA audits and attestations.

We expanded the scope of our audit to July 1, 1997, through to March 31, 2001, to review
NDC's administration of the Perkins loan program. We compared the Perkins loan data from
NDC, its servicer, and NSLDS as part of our audit. We compared NDC's electronic data to
source documents at NDC, as well as with external sources of information. We concluded that
the data provided by NDC was reliable for the purposes intended. We conducted the fieldwork
at NDC located in Manchester, New Hampshire and at the CPA firm in Manchester, New
Hampshire, during the period April 6, 2001, to August 3, 2001. We held the exit conference
with NDC’s officials on August 3, 2001. The audit was conducted in accordance with
government auditing standards appropriate to the scope described above.


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

For the purpose of this report, we assessed and classified the significant controls into the
following categories:

       --      institutional eligibility;
       --      program eligibility;
Rev. Anthony De Conciliis                                                           Page 5

       --      cash management; and
       --      student eligibility.

Because of inherent limitations, a study and evaluation made for the limited purpose described
above would not necessarily disclose all material weaknesses in the management controls.
However, our assessment disclosed several deficiencies which adversely affected NDC’s ability
to administer the Title IV, Federal Perkins loan program. These weaknesses included inadequate
reconciliation of NDC data to its servicers’ data and NSLDS data. This weakness and its effects
are fully discussed in the AUDIT RESULTS section of this report.

                               ADMINISTRATIVE MATTERS

Statements that managerial practices need improvements, as well as other conclusions and
recommendations in this report represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

The report incorporates the comments you provided in response to the draft audit report. If you
have any additional comments or information that you believe may have a bearing on the
resolution of this audit, you should send them directly to the following Education Department
official, who will consider them before taking final Departmental action on the audit:
Your comments should be sent to:

                      Mr. Greg Woods
                      Chief Operating Officer
                      Federal Student Aid
                      U.S. Department of Education
                      Union Center Plaza, Room 122G1
                      830 First Street, NE
                      Washington, DC 20202

Office of Management and Budget Circular A-50 directs Federal agencies to expedite the
resolution of audits by initiating timely action on the findings and recommendations contained
therein. Therefore, receipt of your comments within 30 days would be greatly appreciated.

In accordance with the Freedom of Information Act (5 U.S.C §552), reports issued by the Office
of Inspector General are available, if requested, to members of the press and general public to the
extent information contained therein is not subject to exemptions in the Act.
Rev. Anthony De Conciliis                                                        Page 6

Should you have any questions concerning this report, please contact me at (718) 935-5803.
Please refer to the control number in all correspondence related to the report.


Daniel P. Schultz
Regional Inspector General
 for Audit

Rev. Anthony De Conciliis
Rev. Anthony De Conciliis

January 25, 2002

Mr. Ralph Seastrom Area Case Director
U.S. Department of Education J. W. McCormack Bldg.
90 Devonshire St., Room 706
Boston, MA 02109

Dear Mr. Seastrom,

This letter is in response to your request to notify your office of the actual date for the closure of
Notre Dame College in Manchester, New Hampshire.

Based on our current status and progress and subject to any unforeseen changes, it is the present
intention of the Board of Trustees to close the College on June 30, 2002. We will comply with all
required financial aid regulations.

If you require any further information, please do not hesitate to be in touch with us.


Rev. Anthony J. De Conciliis, C.S.C., PhD. President

cc: William Biser, Treasurer, NDC
                              REPORT DISTRIBUTION LIST
                             CONTROL NO. ED-OIG/A02-B0015

Auditee                                                                     No. of
          Rev. Anthony De Conciliis, President                                 1
          Notre Dame College
          2321 Elm Street
          Manchester, New Hampshire 03104

ED Action Official
       Greg Woods, Chief Operating Officer                                     1
       Federal Student Aid

Other ED Officials/Staff (electronic copy unless otherwise specified)

Chief of Staff, Office of the Secretary                                         1
Under Secretary, Office of the Under Secretary                                  1
Deputy Secretary, Office of the Deputy Secretary                                1
Director, Office of Public Affairs                                              1
Press Secretary                                                                 1
Assistant Secretary, Legislation and Congressional Affairs                      1
Assistant Secretary, Intergovernmental and Interagency Affairs                  1
Office of General Counsel (Correspondence Control)                              1
Chief Financial Officer, Federal Student Aid                                    1
Audit Liaison Officer, Postsecondary Education, Office of General Counsel       1
Audit Liaison Officer, Federal Student Aid                                      1
Audit Liaison Officer, Office of Postsecondary Education                        1
Assistant Secretary, Office of Postsecondary Education                          1
General Manager for Schools Channel, Federal Student Aid                        1
Area Case Director for Case Management and Oversight, Federal Student Aid       1
Headquarters and Regional Audit Managers                                        1