oversight

National Aviation Academy - New England's Lender Agreements

Published by the Department of Education, Office of Inspector General on 2010-08-19.

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

                     UNITED STATES DEPARTMENT OF EDUCATION
                                           OFFICE OF INSPECTOR GENERAL

                                                                                                                    Audit Services
                                                                                                    New York / Boston Audit Region

                                                             August 19, 2010

                                                                                                           Control Number
                                                                                                           ED-OIG/A02J0005

Michael Wisniewski
President
National Aviation Academy – New England
6225 Ulmerton Road
Clearwater, FL 33760

Dear Mr. Wisniewski:

This final audit report, entitled National Aviation Academy – New England’s Lender
Agreements, presents the results of our audit. The purpose of the audit was to determine whether
the agreements between the institution and all lenders complied with the anti-inducement
provisions of the Higher Education Act of 1965, as amended (HEA). Our review covered the
period July 1, 2007, through September 30, 2008.



                                                   BACKGROUND



National Aviation Academy – New England (NAA-NE) is a proprietary aviation maintenance
training school located in Bedford, Massachusetts. The Aeronautical Maintenance Technology
Program offered at NAA-NE prepares students for the Federal Aviation Administration written,
oral, and practical examinations for the Airframe and Powerplant ratings. For the 2007-2008
award year, NAA-NE received a total of $1,314,576 in Federal Family Education Loan Program
(FFELP) funds.

The ownership of NAA-NE changed during the period of our review. From July 1, 2007,
through April 30, 2008, NAA-NE was owned by Corinthian Colleges, Inc. (Corinthian) and was
known as WyoTech-Bedford (WyoTech). On May 1, 2008, National Aviation Academy of
Mississippi, Inc. (NAA) purchased the assets of WyoTech from Corinthian. NAA is a private
company located in Clearwater, FL. NAA currently has two locations, its Tampa Bay Florida
Campus (in Clearwater, FL) and its New England Campus (in Bedford, MA). Since our audit
period covered both ownerships, Corinthian assigned an audit liaison to represent WyoTech.




        The Department of Education’s mission is to promote student achievement and preparation for global competitiveness by
                                    fostering educational excellence and ensuring equal access.
Final Report
ED-OIG/A02J0005                                                                                         Page 2 of 24
Corinthian is a publicly traded corporation based in Santa Ana, California, that operates 89
for-profit colleges in the United States. Corinthian had private loan agreements with three
lenders: Student Loan Xpress, Inc. (SLX), Sallie Mae, Inc. (SLM), and College Loan
Corporation. These agreements provided private loans to Wyotech students who still needed
financial assistance after exhausting all Federal financial aid.

According to Section 435(d)(5)(A) and (C) of the HEA, 1 eligible lenders are prohibited from
offering or paying certain inducements in connection with FFELP loans.

         The term “eligible lender” does not include any lender that . . .
                (A) offered, directly or indirectly, points, premiums, payments, or other
         inducements, to any educational institution or individual in order to secure
         applicants for loans under this part; [or]
                                                .......

                 (C) offered, directly or indirectly, loans under this part as an inducement
         to a prospective borrower to purchase a policy of insurance or other product . . . .

A violation of this prohibition may result in the lender’s disqualification from further program
participation and other sanctions.



                                             AUDIT RESULTS



We found that the agreements between Corinthian and two lenders were not in accordance with
the HEA. We also found that NAA-NE did not disclose to borrowers the method and criteria
used by the school in the selection of any lender that it recommended or suggested in its
preferred lender list. In addition, we received conflicting information from NAA-NE regarding
the existence and use of its preferred lender list. We found no lender agreements in effect during
the period of NAA ownership.

We determined that Corinthian had two agreements with SLX and one agreement with SLM that
included inducements prohibited by the HEA. 2 The two agreements between Corinthian and
SLX included prohibited inducements in the form of Web site services by SLX and provisions
limiting WyoTech’s students’ access to private loans based in part on WyoTech’s FFELP
volume and Federal cohort default rate. The SLM agreement offered inducements to parents of
Corinthian students to borrow PLUS loans with SLM.

Section 435(d)(5) of the HEA prohibits offering or paying inducements to institutions to secure
loan applicants or offering FFELP loans as an inducement for a borrower to purchase another

1
  All citations to the HEA are to the requirements in effect during our audit period, from July 1, 2007 through 

September 30, 2008.

2
  The agreements between Corinthian and the lenders applied to all of Corinthian’s schools, which included

WyoTech.

Final Report
ED-OIG/A02J0005                                                                         Page 3 of 24
product from a lender. We found that the lenders entering into the agreements did not comply
with the HEA’s requirements. We did not identify any noncompliance by WyoTech with
Section 435(d)(5)(A) and (C) of the HEA; however, the lenders offered inducements to the
school in the agreements. Since our audit was of the school and the noncompliance we identified
was attributable to the lenders, we present the details of the agreements between Corinthian and
the two lenders in the Other Matters section of this report.

Scope Limitation

In our Audit Notification Letter, dated January 21, 2009, we requested the most recent and prior
year’s internal audit reports for WyoTech since Government Auditing Standards, paragraph
7.11(e), states, “[a]uditors should assess audit risk and significance within the context of the
audit objectives by gaining an understanding of . . . the results of previous audits and attestation
engagements that directly relate to the current audit objectives.” Corinthian responded that the
internal audit reports were not applicable to our audit. Another Corinthian official informed us
that Corinthian’s Internal Audit Department conducts an audit of the campus every year and if
we wanted a copy we were to go through the Corinthian/WyoTech audit liaison. A second
request for WyoTech’s internal audit reports was made to Corinthian’s audit liaison.

The WyoTech audit liaison informed us, in an email, that:

       The candid self-appraisals contained in our internal audits can only be conducted
       because we understand they aren’t going to be disclosed to third parties. If these
       audits were freely available to third parties, we . . . would be hesitant to conduct
       robust internal audits for fear that the information contained in those reports could
       be used to our detriment. And, in fact, no government agency has, to our
       knowledge, ever sought our internal audit reports. For that reason, we prefer to
       maintain our practice of keeping our internal audit reports confidential within the
       company.

       More to the point, however, our internal audits are not designed to identify
       "lender inducements," so the . . . reports would not be helpful in that regard
       anyway. I have personally reviewed the internal audits . . . for the past three years
       and can confirm to you they contain no findings regarding lender inducements (or
       even inquiries into that subject matter). If the OIG’s [Office of Inspector General]
       audit is moving beyond lender inducements, we would appreciate the opportunity
       to discuss the revised scope.

On March 23, 2009, Corinthian and OIG agreed that Corinthian would produce the “index” of its
internal audits in an attempt to demonstrate to OIG’s satisfaction that the issue of prohibited
inducements was not covered by its internal audits. Corinthian’s legal counsel provided, via
email, three documents in Portable Document Format (PDF), entitled “Internal Compliance
Audit Audit Program – US Schools,” which consisted of a table of contents for each section of
WyoTech’s internal audit reports for fiscal years 2006, 2007, and 2008. Upon review of the
tables of contents provided, we requested additional details on selected sections of these reports
Final Report
ED-OIG/A02J0005                                                                        Page 4 of 24
for review. Our request for additional details regarding WyoTech’s internal audit reports was
denied.

We determined that the tables of contents were insufficient to satisfy our requirement of
obtaining an understanding of internal controls within the context of our audit objective.
Although the stated subject areas did not indicate that the internal audits specifically examined
the issue of prohibited inducements, we could not determine whether the internal audits
contained findings relevant to our audit without examining the internal audits reports.
Government Auditing Standards, paragraph 8.11, states, “[a]uditors should also report any
significant constraints imposed on the audit approach by information limitations or scope
impairments, including denials of access to certain records or individuals.”

Corinthian Comments

Corinthian concurred with OIG’s Audit Results section that WyoTech was not in violation of
Section 435(d)(5)(A) and (C) of the HEA. However, Corinthian expressed no view on OIG’s
Other Matters section and reserved the right to concur or disagree with the information at a later
time. Additionally, Corinthian disagreed with the scope limitation and requested that the scope
limitation be removed from the report. Corinthian stated that while it recognized the importance
of auditors assessing audit risk through gaining an understanding of the results of previous
audits, such assessment should be performed within the context of the audit objectives and the
results of previous audits that relate to the current audit objectives as indicated in Government
Auditing Standards, paragraph 7.11(e). Corinthian further stated that its audit liaison made
representation that the internal audit reports did not address the issue of prohibited inducements
and its outside counsel reviewed the internal audit reports and informed OIG that such reports
did not address the issue of prohibited inducements. Corinthian argued that OIG’s request for
the internal audit reports raised the issue of whether the internal audit reports were protected
under the “self-critical analysis privilege,” citing Bredice v. Doctors Hosp., 50 F.R.D 249
(D.D.C. 1970). Corinthian stated that the “self-critical analysis privilege” protects evaluative
materials from disclosure in order to permit a business to engage in candid self-assessment
without fear that such materials will be used against it. Corinthian’s response is included in its
entirety as Attachment A to this report.

OIG Response

Corinthian’s comments did not cause us to change our scope limitation. Corinthian’s assertion
of a self-analysis privilege to withhold internal audit reports does not change our obligation to
report a scope limitation under Government Auditing Standards; that obligation applies
regardless of whether information is validly or improperly withheld. We routinely request and
receive without objection internal audits prepared by parties that we audit. We note that in
Bredice, the case cited by Corinthian, the district court applied the self-analysis privilege in the
context of private litigation. The Court of Appeals for the District of Columbia subsequently
concluded that “courts with apparent uniformity have refused [the privilege’s] application where,
as here, the documents in question have been sought by a governmental agency.” FTC v. TRW,
Inc., 628 F.2d 207, 210 (D.C. Cir. 1980).
Final Report
ED-OIG/A02J0005                                                                       Page 5 of 24
FINDING – Preferred Lender List Did Not Include Required Disclosures

We found that NAA-NE’s preferred lender list did not disclose to prospective borrowers the
method and criteria used by the school in the selection of any lender that it recommended or
suggested. The preferred lender list that NAA-NE provided to us at our entrance conference
directly addressed borrowers and informed them that they needed to find a participating FFELP
lender or select a participating FFELP lender from the school’s preferred lender list. The
preferred lender list identified NAA-NE’s three preferred lenders, Sallie Mae Ed Trust, Regions
Bank, and Fifth Third Bank.

According to 34 Code of Federal Regulations (C.F.R.) § 682.212(h)(2)(i), a school that provides
or makes available a list of recommended or suggested lenders must “[d]isclose to prospective
borrowers, as part of the list, the method and criteria used by the school in selecting any lender
that it recommends or suggests.” This requirement became effective on July 1, 2008, and was
effective during the last 3 months of our audit period.

Furthermore, the Dear Colleague Letter FP-08-06, states that “. . . a preferred lender list can be
an effective tool to help families looking for [F]ederal student loans to finance the costs of
postsecondary education, when the list reflects the school’s unbiased research to identify lenders
providing the best combination of services and benefits to borrowers at that school.”

NAA-NE officials stated that they were not aware of the requirement to disclose the method and
criteria used by the schools in the selection of any lenders. As a result of non-compliance with
applicable regulations, students could not make an informed choice of FFELP lender.

Scope Limitation

During our audit, we received conflicting information from NAA-NE’s president and from other
NAA-NE officials about the existence and use of a preferred lender list. As a result, we question
the validity of all information provided by NAA-NE during the audit concerning preferred lender
issues.

During our field work, three key financial aid officials and two NAA-NE students stated in
interviews that NAA-NE possessed and used a preferred lender list. Prior to concluding our
fieldwork, we held a meeting to inform NAA-NE’s president, director of student finance, and
assistant director of student finance of our concern that NAA-NE’s preferred lender list did not
include all required disclosures.

During our exit conference, we again informed NAA-NE’s officials that the preferred lender list,
provided to us during the entrance conference, did not comply with Federal regulations.
NAA-NE’s president then informed us that the list given to us was never provided to students as
that list had been produced for purposes of audit.

Subsequent to our exit conference, we re-interviewed NAA-NE’s director of student finance and
NAA-NE’s assistant director of student finance regarding the existence of NAA-NE’s preferred
lender list. Both stated that NAA-NE had never used a preferred lender list, which contradicted
Final Report
ED-OIG/A02J0005                                                                       Page 6 of 24
the statements made by each in interviews during our field work. In addition, the students
interviewed during field work stated they were provided a preferred lender list and one
confirmed SLM was the preferred lender he selected.

Since we received conflicting information from NAA-NE’s president, director of student
finance, and assistant director of student finance, we do not have adequate assurance regarding
the validity of information provided by NAA-NE during the audit concerning preferred lender
issues.

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid (FSA) ensure that
NAA-NE—

1.1	   Obtains training for employees who administer Student Financial Aid, to ensure that they
       are aware of current requirements for Title IV programs.

NAA-NE Comments

NAA-NE agreed with our finding that the preferred lender list provided to us was not in full
compliance with the regulations cited in the report; however, it contends that the non-compliance
occurred only during the transition period after WyoTech was acquired from Corinthian.
NAA-NE disagreed with OIG’s recommendation in the draft report that appropriate action be
taken against NAA-NE under 34 C.F.R. Part 668, Subpart G, due to misleading information
provided to OIG during the audit. NAA-NE stated that in no way did it attempt to mislead OIG.
NAA-NE stated that two former financial aid employees from WyoTech, subsequently retained
by NAA-NE, updated and used a preferred lender list that was probably used by the two former
financial aid employees from WyoTech. NAA-NE asserts that this preferred lender list was
provided to OIG and probably the one provided to students during the transition period before it
implemented a new system in the fall of 2008. According to its comments, NAA-NE cooperated
fully with all OIG requests for information or interviews during fieldwork, however, prior to the
exit conference it was never informed by OIG that the preferred lender issue was found at
NAA-NE. NAA-NE stated that at the exit conference its president made an attempt to explain
the situation; however, he mistakenly gave the impression that the document provided to OIG
was created in response to OIG’s request for NAA-NE’s preferred lender list. NAA-NE stated
that any non-compliance has been fully corrected and proper training procedures were
implemented to ensure that it does not occur again. NAA-NE’s response is included as
Attachment B to this report.

OIG Response

Based on our review of NAA-NE’s comments and our record of interviews with NAA-NE
officials, we revised our final report and eliminated a recommendation for administrative action.
However, since NAA-NE officials did provide conflicting statements about the existence of a
preferred lender list, we have retained our scope limitation, modified to apply to preferred lender
issues.
Final Report
ED-OIG/A02J0005                                                                                       Page 7 of 24


                                           OTHER MATTERS



The agreements between Corinthian and SLX and SLM did not comply with the prohibitions on
inducements in Section 435(d)(5)(A) and (C) of the HEA, and they contained inducements that
were attributable to SLX and SLM. We found that two agreements between Corinthian and SLX
and one agreement between Corinthian and SLM included prohibited inducements. In general—

          •		SLX agreed to provide prohibited services to Corinthian, assisting it with the
             development of a Web site and administrative reports;

          •		SLX limited WyoTech students’ access to private loans based on WyoTech’s FFELP
             loan volume and Federal cohort default rate; and

          •		SLM agreed to offer students’ parents a $500 credit towards closing costs of a new
             SLM Home Loan, if the parents borrowed PLUS loans with SLM.

A March 30, 2007, agreement between Corinthian and SLX specifically stated that “SLX shall
assist Corinthian with the development of a [Web] site providing student loan information and
assist Corinthian in establishing a link to SLX’s [Web] site (including a splash page) for the
purpose of PLUS pre-approval, loan management, and Stafford loan applications.” 3 SLX also
agreed to provide administrative reports for each campus Corinthian owned, upon Corinthian’s
request.

Another agreement between Corinthian and SLX offered Credit Risk Subsidy Program (CRSP)
loans to WyoTech’s high-risk student borrowers but required Corinthian to pay a 10 to
40 percent premium on those loans. The agreement limited WyoTech’s students’ access to
CRSP loans based on WyoTech’s FFELP loan volume and Federal cohort default rate. 4 Under
this agreement, SLX could temporarily terminate the agreement if the CRSP loans exceeded
15 percent of all educational loans made to Corinthian’s students, including loans made under
the FFELP. In addition, the agreement stated that it may be terminated immediately by SLX
upon delivery of written notice to the school if the school’s Federal cohort default rate exceeded
15 percent.

A program review report of “Fifth Third Bank as Eligible Lender Trustee (ELT)” issued by ED’s
FSA on February 23, 2009, also stated the two concerns we identified with respect to SLX. The
program review report indicates that Fifth Third Bank, as ELT for SLX, provided Web site
redesign services to a particular educational institution with the sole purpose of securing FFELP
3
  A “splash page” is the page of a Web site that the user sees first before being given the option to continue to the
main content of the site. Splash pages are used to promote a company, service, or product or are used to inform the
user of what kind of software or browser is necessary in order to view the rest of the site’s pages.
4
  In general, Federal cohort default rates, calculated under 34 C.F.R. Part 668, Subpart M (for Federal fiscal year
2008 and earlier) were the percentage of a school's borrowers who entered repayment on FFELP or William D. Ford
Federal Direct Loan Program loans during a Federal fiscal year and defaulted before the end of the following
Federal fiscal year.
Final Report
ED-OIG/A02J0005                                                                      Page 8 of 24
volume. As set forth in the report, such services are prohibited by Section 435(d)(5)(A) of the
HEA.

The program review report also found that a termination clause that was present in many SLX
agreements tied private loans to overall education loan volume. The report stated that the
application of the clause to the overall education loan volume which includes FFELP loans could
appear to be increasing the amount of private loan volume that a school may have available to its
students. The report recommended that SLX modify its agreements to clearly explain that the
relationship between a school's access to private loans and SLX’s FFELP volume is to limit its
financial risk.

Resolution of the above mentioned program review report was included in a Determination and
Voluntary Disposition (Settlement Agreement), dated March 23, 2009, between ED, Fifth Third
Bank, SLX and SLX’s parent company, CIT Group Inc. Fifth Third Bank and CIT Group Inc.
agreed to respectively pay ED the sum of $300,000 and $4,837,500. ED agreed to take no
further action against Fifth Third Bank or CIT Group Inc. on the issues raised in the program
review report.

On November 17, 2009, SLX was made aware of the results of our audit and given an
opportunity to respond. SLX’s response was provided to us on December 4, 2009, indicating
that SLX did not concur with our results. According to its response, SLX did not believe any
improper inducements occurred in its agreements with Corinthian since it had developed its loan
programs in consultation with experienced industry counsel and within the context of the
guidance that was available from ED at the time. In addition, SLX believes that the issues raised
by our audit are moot because SLX has ceased originating both government guaranteed and
private student loans, and any actual or potential issues on inducements had been resolved by the
Settlement Agreement with ED.

SLX’s comments did not cause us to alter our conclusion that improper inducements were
offered. On July 9, 2010, we separately referred the SLX issues to FSA in an alert
memorandum, Lender Agreements between Sallie Mae and Student Loan Xpress and Corinthian
Colleges, Inc., Contained Inducements (Control Number ED-OIG/L02K0001), in which we
recommend FSA determine whether the issues were resolved by the Settlement Agreement, and
to take appropriate actions if the issues were not resolved. We included SLX’s comments as an
attachment to the alert memorandum.

Sallie Mae Offered Parents an Inducement to Borrow PLUS Loans

SLM’s agreement with Corinthian states that SLM would provide a $500 credit towards closing
costs on a new SLM Home Loan to parents who obtained a PLUS loan from SLM. A
March 21, 2007, “Letter of Understanding” between Corinthian and SLM summarized the
products and services that SLM would provide to Corinthian, its students, and their parents.
According to the letter, SLM would be Corinthian’s primary loan provider and would grant
Corinthian students access to both Federal and private education loans. Included in this
agreement was a provision for parents to obtain a one-time $500 credit towards their closing
costs of a new home loan from SLM if the parent obtained a PLUS loan from SLM. Through
Final Report
ED-OIG/A02J0005                                                                       Page 9 of 24
this provision, parents of Corinthian students were offered an inducement to borrow PLUS loans
in order to qualify for a one-time $500 credit towards closing costs on a new SLM Home Loan.
According to Section 435(d)(5)(C) of the HEA, lenders cannot offer, directly or indirectly, loans
as an inducement to a prospective borrower to purchase other products.

On November 16, 2009, SLM was made aware of the results of our audit and given an
opportunity to respond. SLM provided a response on December 4, 2009, indicating that it did
not concur with our results. According to its response, SLM did not believe that the $500
closing cost credit was an inducement by SLM for Corinthian parents to apply or obtain PLUS
loans from SLM. SLM stated in its response that it did not violate Section 435 (d)(5)(A) and (C)
of the HEA in view of the facts that: 1) the $500 closing cost credit was not, in fact, marketed to
any prospective parent borrower, and 2) Corinthian parents were allowed to obtain PLUS loans
regardless of whether they agreed to apply for or obtain an SLM home loan. SLM stated that no
PLUS borrower at WyoTech obtained a mortgage from SLM during the timeframe.

As part of this audit, we did not examine how SLM marketed its mortgage loans or marketed the
FFELP loans to WyoTech students and parents and cannot corroborate the statements made by
SLM. However, whether the closing credit was in fact marketed to students or parents, the fact
remains that SLM offered the inducement through the agreement itself in violation of
Section 435 (d)(5)(A) and (C) of the HEA. While parents may have been allowed to obtain
PLUS loans regardless of whether they agreed to apply for or obtain an SLM home loan, the
$500 credit was an inducement to obtain PLUS loans, thus violating Section 435(d)(5)(C) of the
HEA. Therefore, we have not modified the Other Matters section based on SLM’s comments
and separately referred this matter to FSA in the memorandum we issued on July 9, 2010.



                  OBJECTIVE, SCOPE, AND METHODOLOGY



The objective of our audit was to determine whether the agreements between the institution and
all lenders for the period July 1, 2007, through September 30, 2008, complied with the
anti-inducement provisions of the HEA. We reviewed all agreements between lenders and the
institution, including the corporation that owned the institution. The institution changed
ownership during the period of our review. Under Corinthian’s ownership (July 1, 2007, through
April 31, 2008) the institution was known as WyoTech. Under NAA’s ownership (May 1, 2008,
through September 30, 2008) the institution’s name changed from WyoTech to NAA-NE.

To accomplish our objective, we:

   •		 Obtained an understanding of NAA-NE’s, NAA’s, WyoTech’s, and Corinthian’s internal
       controls over prohibited lender inducements through direct observation and by
       conducting interviews with corporate and school officials as well as students.
   •		 Reviewed requirements prohibiting lender inducements in the HEA and pertinent

       regulations.

   •		 Reviewed NAA-NE’s documents related to all lenders, including (but not limited to):
Final Report
ED-OIG/A02J0005                                                                       Page 10 of 24
             o	 The list of lenders NAA, NAA-NE, WyoTech, and Corinthian had interacted with
                 in the past 5 years;
             o	 NAA-NE’s preferred lender list;
             o	 NAA’s and NAA-NE’s chart of accounts;
             o	 Listing of services provided by the preferred lenders;
             o	 Individual student files for those who participated in the FFELP.
   •		   Obtained and reviewed written policies and procedures regarding incentives that may be
         provided to Corinthian employees.
   •		   Obtained and reviewed a list of charitable contributions made by Corinthian.
   •		   Obtained and reviewed any agreements between the corporate entity, the school, and
         lenders to identify those with arrangements that warrant further review or indicated
         potential improper inducement activities.
   •		   Obtained and examined NAA-NE’s, NAA’s, and WyoTech’s general ledger detailed
         accounts report.
   •		   Obtained and reviewed NAA’s, NAA-NE’s, Corinthian’s, and WyoTech’s latest audited
         Financial Statements Reports, and Compliance Attestation Examination of the Title IV
         Student Financial Assistance Program and the related audit documentation.
   •		   Conducted interviews with the Independent Public Accountants (IPA) that performed the
         financial statement audits and the institution’s Compliance Attestation Examination of
         the Title IV Student Financial Assistance Program.

We conducted audit fieldwork at NAA-NE’s office in Bedford, Massachusetts, from
February 10, 2009, through March 13, 2009. We conducted fieldwork at Corinthian’s corporate
headquarters, located in Santa Ana, California, from May 11, 2009, through May 15, 2009. In
addition, we went onsite to the IPA’s office in San Diego, California, to review the work of the
IPA that performed WyoTech’s compliance audit. We held our exit conference with NAA-NE
and a Corinthian official on August 31, 2009.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.

Scope Limitations

A request for WyoTech’s internal audit reports was made on two separate occasions. In response
to our first request, Corinthian responded that the internal audit reports were not applicable to our
audit. Upon our second request, we were informed that WyoTech’s internal audit reports did not
contain any findings related to lender inducements. On March 23, 2009, Corinthian and OIG
agreed that Corinthian would produce the table of contents of its internal audits in an attempt to
demonstrate to OIG’s satisfaction that the issue of prohibited inducements was not covered by its
internal audits. Upon review of the table of contents provided, we requested additional details on
selected sections of these reports for review. Our request for selected sections of WyoTech’s
internal audit reports was denied. Corinthian’s refusal to provide WyoTech’s internal audit
reports prevents us from obtaining a complete understanding of internal controls within the
Final Report
ED-OIG/A02J0005                                                                      Page 11 of 24
context of our audit objective and causes us to qualify any conclusions we have drawn on the
basis of the data made available.

Moreover, NAA-NE officials provided conflicting statements about the existence of a preferred
lender list. As a result, we do not have adequate assurance regarding the validity of information
provided by NAA-NE during the audit concerning preferred lender issues resulting in a scope
limitation.



                            ADMINISTRATIVE MATTERS



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

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

                              William J. Taggart
                              Chief Operating Officer
                              Federal Student Aid
                              U.S. Department of Education
                              Union Center Plaza, Room 112E1
                              830 First Street, N.E.
                              Washington, DC 20202

It is the policy of the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 days would be appreciated.

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

We appreciate the cooperation and assistance extended by your staff during the audit. If you
have any questions, please contact me at (646) 428-3888.

                                             Sincerely,


                                             Daniel P. Schultz
                                             Regional Inspector General
                                              for Audit
Final Report
ED-OIG/A02J0005                                                             Page 12 of 24


                       Acronyms /Abbreviations Used in this Report


C.F.R.                     Code of Federal Regulations

Corinthian                 Corinthian Colleges, Inc.

CRSP                       Credit Risk Subsidy Program

ED                         U. S. Department of Education

ELT                        Eligible Lender Trustee

FFELP                      Federal Family Education Loan Program

FSA                        Federal Student Aid

HEA                        Higher Education Act of 1965, as amended

IPA                        Independent Public Accountant

NAA                        National Aviation Academy of Mississippi, Inc.

NAA-NE                     National Aviation Academy – New England

OIG                        Office of Inspector General

PDF                        Portable Document Format

Settlement Agreement       Determination and Voluntary Disposition

SLM                        Sallie Mae, Inc.

SLX                        Student Loan Xpress, Inc.

WyoTech                    WyoTech-Bedford
Final Report
ED-OIG/A02J0005                                                                                              Page 13 of 24
                                                          Attachment A



                   CCi
             CORI NT HIAN
            CO ll G S , INC .




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                   May 25, 2010


                   Via e-mail and Overnight Mail
                   Daniel P. Schultz
                   Regional Inspector General for Audit
                   U. S. Department of Education
                   Office of Inspector General
                                       •
                   32 Old Slip, 26 Floor
                   Financial Square
                   New York, NY 10005

                                Re:   Draft Reports; Everest Institute's Lender Agreements (Control Number
                                      ED·OIG/A02J0001) and National Aviation Academv- New Eng/and's
                                      Lender Agreements (Control Number ED-01G/A02JOOOS)


                   Dear Mr. Schultz:


                   We are in receipt of your draft audit reports entitled Everesllnstilute's Lender
                   Agreements (Control Number ED·OIG/A02J0001) and National Aviation Academy­
                   New Eng/and's Lender Agreements (Control Number ED-OIG/A02J0005), both dated
                   April 26, 2010, and appreciate the opportunity to respond. As you are aware, Corinthian
                   Colleges, Inc. ("Corinthian") is the parent company of Everest Institute in Brighton,
                   Massachusetts ("Everest"). Additionally, prior to May 1, 2008 Corinthian was the parent
                   company of WyoTech Bedford ("WyoTech"), now known as National Aviation Academy
                   - New England ("NAA-NE").


                   Audit Results

                   Corinthian concurs that during the relevant periods Everest and WyoTech were not in
                   violation of Section 435(d)(5)(A) and (C) of the Higher Education Act of 1965, as
                   amended (the "HEA"). We express no view as to the compliance of lenders that are
                   described in the draft audit reports.

                   Other Matters

                   Corinthian has no comment regarding the findings with respect to NAA-NE after the




                                                                   1
Final Report
ED-OIG/A02J0005                                                                                     Page 14 of 24




        change of ownership on May 1, 2008. Additionally, Corinthian has no comment on the
        information contained in the "Other Matters" sections of the draft reports because they
        do not allege that Everest or WyoTech were in non-compliance with Section
        435(d)(5)(A) and (C) of the HEA. Rather, they address alleged non-compliance by
        lenders. Corinthian reserves the right to concur or disagree with the information in the
        future, if necessary.


        Scope Limitation


        Corinthian disagrees with the scope limitation described on pages 2-3 and 7 of the draft
        audit report for Everest, and pages 3-4 and 9-10 of the draft audit report for WyoTech.
        We recognize the importance of auditors assessing audit risk by gaining an
        understanding of the results of previous audits, but, as the draft audit reports note, such
        assessments are to be performed "within the context of the audit objectives," and the
        auditors are to review previous audits that "relate to the current audit objectives."
        Everest Draft Audit Report, at 2 (quoting Government Auditing Standards, at 1]7.11(e)).


           Internal Audits were Unrelated to the Audit Objectives


        Corinthian's audit liaison made representations to the auditors that the internal audits in
        question did not address the issue of prohibited inducements and, therefore, did not
        "relate to the current audit objectives," i.e., the inducement prohibition. Further,
        Corinthian's outside counsel, Jonathan Vogel, reviewed the internal audit reports and
        explained to the OIG's chief counsel that the internal audits did not address lender
        inducements. Moreover, Mr. Vogel explained that Corinthian was reluctant to disclose
        evaluative materials, and that, considering that the internal audits did not at all address
        the issue of prohibited lender inducements, the auditors' examination of those
        evaluative materials would not be "within the context of the audit objectives."


        In order to enable the auditors to verify that the internal audits did not address
        prohibited lender inducements, Corinthian provided the auditors with relatively detailed
        indices of the compliance areas addressed in the internal audits for fiscal years 2006,
        2007, and 2008 that were requested. The indices showed that prohibited lender
        inducements were not addressed in the internal audits.


           The Self-Critical Analysis Prvilege Protects against Disclosure
                                         i




        In discussions with OIG's chief counsel, Me. Vogel explained that the auditors' request
        for Everest's voluntary, internal audits raised the issue of whether those audits were
        protected under the self-critical analysis privilege, or the important public policy
        considerations that underlie it. The self-critical analysis privilege protects evaluative
        materials from disclosure in order to permit a business to engage in candid self­
        assessments without fear that such materials will be used against it. See, e.g., Bredice
        v. Doctors Hospita,
                          l Inc., 50 F.R.D. 249 (D.C. 1970).



                                                      2
Final Report
ED-OIG/A02J0005                                                                                    Page 15 of 24




        The self-critical analysis privilege protects an organization from the dilemma of either (i)
        investigating possible regulatory violations, ascertaining whether they exist, and
        correcting any violations, but thereby creating a self-incriminating record that may be
        evidence of liability, or (ii) deliberately foregoing an internal evaluative review and
        making a record on the subject (and possibly leaving a regulatory violation uncorrected)
        in order to lessen the exposure of regulatory claims. The self-critical analysis privilege
        is similar to, and based on the same public policy considerations as, Rule 407, Federal
        Rules of Evidence, which excludes evidence of subsequent remedial measures.
        Without this privilege, organizations such as Corinthian would be chilled from such self­
        analysis. Indeed, in our experience, regulatory bodies have seemed to understand this
        concern, as this is the first time we have encountered a request from a regulatory body
        for our internal audits.


               Summary

        In summary, as demonstrated by the draft audit reports' "Other Malters" sections, the
        auditors obtained from Everest and WyoTech all of the schools' primary sources of
        information on the issue of prohibited lender inducements. As a result, the auditors did
        not experience "any significant constraints imposed on the audit approach." Everest
        Draft Audit Report, at 3 (quoting Government Auditing Standards, at 1]8.11). Despite
        the assertion in the draft audit reports to the contrary, the auditors did, in fact, obtain a
        "complete understanding" of the schools' information related to prohibited lender
        inducements. Everest Draft Audit Report, at 7. There is, therefore, no reason for the
        draft audit reports to qualify their conclusions on the basis of the information made
        available.


        Corinthian respectfully requests that the scope limitation be removed from both draft
        audit reports.


                                                           Sincerely,




                                                           gP!f
                                                            :e t :
                                                           Execu ti
                                                                            e
                                                                                eSident
                                                           and General Counsel


        cc:    Jonathan Vogel, Esq.
               Linda Buchanan




                                                       3
Final Report
ED-OIG/A02J0005                                                                                               Page 16 of 24
                                                      Attachment B


                                                                                                                 Tampa Say
                                                                                                         6225 Ulrnerlon Road
                                                                                                    Clearwater, florida 33760
                                                                                                        Phone: 800.659.2080
                                                                                                           Fax: 727.535.8727

                                                                                                               Haw England
                                        National Aviation Academy                                         ISO Hanseom Drive
                                                                                                Bedford, Massachusetts 01730
                                                      www,NAA,edu                                        Phone: 800.292.3228
                                                                                                           Fax: 781.274.8490




                                                        May 24, 2010



           Via email and Federal Express

           Unitcd States Depanment of Education
           Office of the Inspector General
           Attention: Daniel P. Schultz
           32 Old Slip, 261h Floor, Financial Square
           New York, NY 10005


                        Re:        National Aviation Academy - New England ("NAA - New England")
                                   Response to the United States Department of Education ("USDOE") draft
                                   audit repon dated April 26 , 2010: Control Number ED-OIG/A02JOOO5 of
                                   NAA - New England (the "draft audit rcpon")


           Dear Mr. Schuilz:


                        I am in receipt of the draft audit repon for NAA - New England dated April 26,
           2010, and respectfully I cannot concur with the audit findings.              I am the owner of
          National Aviation Academy, the parent company of NAA - New England.                      I am the
          Chairman of the Board and Chief Executive Officer of both National Aviation Academy
          ("NAA'') and its subsidiary NAA - New England. In 1990 I formed NAA and acquired
          an aviation maintenance technical training school in Tampa Bay, Rorida, which had been
          in business since 1969, and have operated iI continuously since 1990.                  NAA has
          established a preemincnt reputation for operating            It   Federal Aviation Administration
          ("FAA") approved aviation maintenance technology school.

                       In lale 2007, Corinthian Colleges, Inc. approached NAA with a proposition that
          NAA acquire the assets of the aviation maintenance technology school it operated in
          Bedford, Massachusetts as Wyo-Tech (formcrly known as East Coast Aero Tcch), NAA
          viewed the asset purchase of Wyo-Tech (formerly East Coast Acro Tech) as an
          opportunity to expand our mission of providing the hightst quality aviation maintenance
          education and to restore the good name of East Coast Aero Tech that has existed since
           1932. Had NAA not acquired the Wyo-Tech assets in all likelihood the schoo! would
          have closed displacing students and likely creating defaults on their student loans and
          depriving the world aviation market of a critical labor force of FAA·licensed aviation
          maintenance technicians. NAA worked diligently and under a very short window of time
          with the FAA, the USDOE, the Massachuselts Department of Education, our accrediting
          body, ACCSC and the Massachusetts Port Authority. who were all supportive nnd helpful


          \l!.r
              ..... v' '.' OS>'!
Final Report
ED-OIG/A02J0005                                                                                            Page 17 of 24




           with our acquisition because they wanted to ensure the continuing existence and
           continuity of this school under NAA's stewardship.

                   NAA's Mission Statement says that we will educate aviation maintcnancc
           technician students in a learning environment conducive to excellence in meeting the
           needs of thc world aviation maintenance industry.           NAA provides an educational
           environment that encourages the highest standards of scholarship and training, and meets
           and exceeds all federal and state rules, regulations and laws for a proprietary aviation
           maintenance school. NAA strives and ensures improvements in the quality of its faculty,
           staff, faCilities, and other resources. NAA has I to plus dedicated employees that strive
           everyday to ensure that every ycar thc best trained FAA-licensed aviation maintenance
           technician graduates enter the workforce and make an inunediate contribution to the safe
           travel of millions of people worldwidc.

                   NAA has over 600 students between its campuses in Tampa Bay, Florida and
           Bcdford, Massachusetts.     NAA-Tampa Bay and NAA-New England have trained and
           graduated many thousands of FAA federally licensed aviation technicians who are now
           achieving thc American dream.        They   arc   employed by all major airlines, aircraft
           manufacturers, maintenance repair and overhaul facilities, transport arenas, as well as in
           general aviation.   The two NAA organizations combined have produced an estimated
           18,000 FAA federally licensed aviation maintenance technicians since their inception.
           Everyday, NAA teaches its students ethics, integrity, and to follow the prescribed
           procedure.    There are no shortcuts in aviation maintenance, and we have never, to our
           knowledge, had a graduate who was ever cited for rules infractions by the FAA. NAA
           attributes this impeccable safety record to the meticulous training that is given to students
           to always follow the prescribed procedures without exccption. For thc ycar ending June
           2009, NAA-Tampa Bay had a student completion rate of 81.88%, a 100% FAA licensure
           exam pass rate, and a 93.27% placement rate. This was accomplished while dealing with
           some of the most adverse economic circumstances the aircrarl industry ha                 ever
           experienced.

                  NAA has always worked diligently to supplant        OUf   integrily and culture as an
           overlay to NAA·New England.          After acquiring NAA-New England there has been
           substantial   improvement in retention rates,      graduation rates,   licensure   rates, and
           placement rates at NAA·New England.          On May 1, 2008 Wyo-Tech's then current
           retention rate was 66.5%, and on May I, 2010 NAA-New England's current retention
           rate was 84.7%. Retention rates are a direct reflection of future completion rates and
           NAA·New England projects completion rates of 70-80% by as early as next year.
           Reports submitted in 2009 reflect the results of Wyo-Tech start dates from June 2006       -



          May 2007 and the graduation rate was 56% while the placement rate was 74%.              These
           results do not meet the stlmdards of NAA and are projected to improve dramatically for
          the next several reporting periods.    Following the acquisition, NAA·Ncw England has
           been able to return a number of students on leave of absence and withdrawals, and help
          these students obtain federal licensure. The FAA flight standard district office (FSDO)
           for NAA-New England is available to confinn the quality of the education and the
           commensurate results that are now being achieved at NAA-New England.                 William
          Fullam, FAA Primary Maintenance Inspector of NAA-New England can be reached at
          the FSDO Office (781) 357-4937 to verify and acknowledge our representations of
          quality in this matter.
Final Report
ED-OIG/A02J0005                                                                                         Page 18 of 24




                  NAA has an impeccable history of meeting all standards of regulatory
           compliance. NAA has never bee n fined or cited by any regulatory agency for non­
           compliance with any law$., rula or regulations. Mike Wisniewski joined the NAA leam
           in 2002 and sil]Cll 2004 has served as President of NAA and was appointed President of
           NAA-Ncw England when it was acquiml in May 2008. Mike Wisniewski is known to
           me, the NM team, the community and his family to be a man of the utmost integrity and
           character and wouJd under no circumstances lie nor misrepresent any matter to anyone,
           espocial1y an auditor for the USOOE.

                  Spannin g from 2002 10 the preseot, NAA has succe$Sfully completed with DO
          6ndiDgs: an USOOE - Program Review (June 2(02), (wo Re-Affinnations of
          Accreditation from the COWIcil on Occupational Education (August 2003 &. August
          2(09), and a State of Florida - Offace of Student Financial Assistance - Program Review
                                                                                               ....
          (July 20(4). NAA achi.evN zero findings in all Independent Compliance Audits in Fscal
          2004 - Fiscal 2009 (6 years) and NAA-New England bas achieved zero findings in all of
          its Iodc:pcndent Compliance Audits since we acquired it in May 2003. Additional1y,
          NAA has successfully completed every State Departmeal of Education and Accredi ting
          Body annual review and/or report. Prior to 2002, any findings were correc ted in a timely
          manner and in one instance NAA self reported an iss ue and took corrective measures

          independen t of any review. While NAA is nol perfect, we strive for excellence and
          adherence to all app licable laws and regulations and our track record demonstrates our
          commiuncnt to ensure compliance.

                A rurther example of our support of the USDOE and compliance with laws i.s
          demonstrated by an event that occurred in the 'pring of 200'. After sweeping refonn of
          the NSLDS Oatabue, NAA was approached by a loan con$Oljdation company requesting
          we     assist them with access to NSLDS. Our Director of Financial Aid was approached
          with a substantial monetary offer for the




                  Following the review of tbe Preliminary Findings report issued lUId discussed in
          our exit interview for this audit and in our continuing quest for excellen e and
          compliance, we have initiated fwther education and training procedures for our financial
          aid counselors. Our training includes five to six days of training regarding federal
          student aid, awarding aid. student eligibility, maintaining records, evaluation of Title rv
          program management, and other related topics. This training session is then followed by
          ttuee to four weeks of review, question and answer sessions, and observation of financial
          aid appointments. Only then is the financial aid counselor given the opportunity to
          conduct financial aid overviews with students. and even then the counselor continues
          under supervision for at least two weeks. Further, the education programs and materials
          for Donna Wells, the Director of Financial Aid for NAA-New EnSland are continually


          111)......111"' ....,"
Final Report
ED-OIG/A02J0005                                                                                            Page 19 of 24




           reviewed and any new available education programs and wcbsite matcrials are added to
           ensure that Ms. Wells keeps abreast of the changes in the USDOE Rules and Regulations
           applicable to Student Financial Aid.           She and Julie Prashad·Ramirez, the director of
           Financial Aid for NAA-Florida frequently confer and review changes in any rules and
           regulations and the implementation of any requircd regulations.

                      Over the las! several years the student lending industry bas seen major cbanges
           and a lot of wrongdoing and inappropriate conduct were uncovered. As you confinned in
           your audit, NAA-New England did not have any lender agreements in effect during
           NAA-New England's period of ownership during tbe audit period. NAA was not aware
           of the lender contracts that Corinthian Colleges had with Student Loan Xpress (SLX),
          Sallie Mae, Inc. (SLM) or College Loan Corporation during the period of its ownership
           of Wyo-Tech. These lender contracts were not disclosed to NAA and were not part of
           the Wyo-Tech acquisition. In our 20 year existence, NAA has never had an inappropriate
           relationship with a lender. NAA has ncvcr received any inducement from a lender and
           has never preferred one lender over another. In support of tttis, please find a letter dated
           May 20, 2010 from Ralph Ross, of BKD, LLP attached.                  8KD, LLP. independent
          certified public accountants, prepared the attestation of financial statement and the
           student loan compliance report for NAA-New England for the year ending June 30, 2009.
           This covered the July I, 200S to September 30, 200S period of the a1lcged non·
          compliance.           BKD. LLP in tttis letter confinns that it found it no evidence of any
           improprieties with any lenders or the use of any preferred lender list.

                      Upon receipt of the USDOE-OIG draft audit report, r was dismayed and with the
          audit findings questioning the integrity and validity of the infonnation provided by NAA­
           New England during the audit. I was mortified that such an accusation would be levied
          at NAA. The first phone call that I made was 10 our independent legal counsel, Watkins,
          Ludlam, Winter & Stennis, P.A          .•   and I engaged them to do whatever is necessary to
          investigate this matter to decennine if there was any matter of non-compliance.         I also
          made a call to Ralph Ross al BKD, LLP. our independent certified accountants, and
          engaged them as independent auditors to review this mailer and their audits to determine
          if there had been any violations.           Additionally. I did not consult with anyone in the
          company before consulting with our lawyers and auditors. However, when I did speak to
          NAA employees regarding the investigation, I encouraged them to be open and cooperate
          without reservation. I had these investigations conducted because r deemed this the most
          serious affront to the impeccable record of integrity of this organization wttich I have
          nurtured since 1990.

                     The draft audit report found that NAA-New England's preferred lender list
          provided to the auditors in connection with the audit did not include the required
          disclosures under regulation 34CPR Section 6S2.212(h)(2)(i). wttich went into effect on
          July 1. 200S As noted, I authorized our outside legal counsel, Watkins. Ludlam, Winter
          & Stennis, P.A. to review the draft audit report and conduct an independent investigation.
          Based on my own investigation and those I had our outside legal counsel, Watkins,
          Ludlam Winter & Stennis, P.A. conduct, I cannot concur with the findings in the USDOE
          draft audit report. A letter from Gina jacobs at Watkins, Ludlam, Winter & Stennis, P.A.
          dated May 24, 2010 is attached wttich outlines their investigation and supports the
          findings of my own investigation.




          ll".....v".'.....'l
Final Report
ED-OIG/A02J0005                                                                                        Page 20 of 24




          Historical Audit Infocmation

                  By way of background. [ have conducted my own investigation into the events
          discussed in the draft audit repon. and [ want to share my conclusioos with you. The
          au dit period covered July I, 1fXJ1 through September 30, 2008; however, NAA purchased
          NM·New England on May 1, 2008. Thus. much of the audit period covertd I. time that
          the school was operated as Wyo.Tecb and owned by Corintbian Colleges, Inc.

                The May 1,2008 00 September 30. 2008 period during the audit when NAA·New
          England owned and operated the school was a period of transition and great cbange.
          NAA bad just acquired the sc hool on May 1,2008. AJly transition period is difficult
          following an acquisition. but the NM· New England transition was particularly diffICUlt
          because Corintlllan Colleges had let tbe school deteriorate in anticipation of closing the
          school if it could DOl be sold. When NAA·New Enaland took over on May 1. 2008,
          NAA-New ElIgiand attempted as smooth a transition as possible to help students
          complete their educational program with no interruptioo. The transition period was
          further complicated due to the tunnoil in the economy and the failure of the secondary
          loan markeu causing many lenden to withdraw from the student lending martel.

                                    hire d the ex.isting two Wyo-Tech Fmancial Aid staff,.
                                        who were supervised by Lindsay Zuluaga the NAA
                                    I Aid. Ms. Zuluaga was hired by NM in April 2008 just
                the acquisition of NAA·New England. At the time of the acquisition of Wyo.
          Tech by NAA, Wyo.Tech was outsourcing certain fmancial aid functions to Global
          Financial Services. To aid in tbe transition, NAA determined to continue the same
          outsourcing with Global Financial Services after the acquisition in May 2008 until the
          end of the cunent award year on June 30, 2008 at which time NAA-New England then
          transitioned and brought in-house all the financial aid functions.

                  During this transition period, we had time to review the performance of the prior
          Wyo-Tech employees we had employed in the financial aid department. It then became
          appareDt that splitting Ms. Zuluaga's time and supervision betWeen the Tampa Bay and
          New England campuses was not going to be sufficient and an on·site supervisor for the
          financial aid department was required. Since we felt neither of the Wyo-Tech employees
          we had rehired were capable. Donna Wells was hired and staned on August 11, 2008.
          Ms. Zuluaga and Ms. Wells were established Financial Aid professiooa!s with 24 years
          and 16 years of Ellandal Aid experieoce. respectively. Wben Ms. Wells came on board
          in mid·August 2008, she was imme diately tasked with the responsibility of establishing
          the financial aid policies and procedure! for NAA- New England and reviewing and
                .
                    the financial aid procedures fllld training of financial aid staff for NAA·
                  . Of these employ               . Wells remAins with NAA-New England. as .
                     Ms. Zuluaga and              are no longer employed with NAA or NAA·New
          England.

                  I want to be clear that                                           the two foIinU
          WYO-lech finllDCiai aid                                                We are uncertain
          bow Wyo-Tech conducted                                               the distribution of
          any lender list before the acquisition. During the transition         former Wyo·Teth
          employees continued to conduct the student interViews and some of the same fonns were
Final Report
ED-OIG/A02J0005                                                                                            Page 21 of 24




           used since Global Financial Services was still processing loan files for II period after the
           acquisition. It is possible that during the transition period before Donna Wells was hired
           In mid·August 2008 that some former Wyo-Tech forms were used and NAA-New
           England's name was placed Oll ihem where appropriate.

                  From review of the student loan files for the two students mentioned in the draft
           audit report, it IppeIUS thal               nducrcd one                   s, and willie it is
           unclear who conducted the other, we believe it was                         ,The draft audit
           reports states that these students indicated to the auditors that they received II preferred
          lender list. We can only conclude that the former Wyo-Tech employees who were hired
          by NAA·New England updated and used the Wyo-Tech ptcferred lender list and gave it
          to these students during the transition period before Ms. Wells implemented II new
          system. Ms. Wells has confumed that she discontinued the use of any Wyo-Tech roons
          and has never used II preferred lender list. If such II fonner Wyo-Tech list was used. it
          did not comply with the regulations. However, any such non-compliance was very brief
          during a uansition period and has long been rc:etified and no longer exists. Please note
          that the lender list provided to the auditors by NAA-New England which we suspect may
          have been a fanner Wyo-Tech documemlisted only those lenders who were known to be
          making loans to NAA-New England students following turmoil in the student loan
          market.

                  NAA received a Jetter dated January 21, 2009 with a list of requirements for the
           audit schedulod to start on February 10, 2009. NAA·New England President, Mike
           Wisniewski requested infonnation from the applicable department hcads and NAA- New
           England compiled information for the auditors to !.he best of our ability. AI this time and
           during the audit, Ms. Zuluaga, Ms. Wells and                      were the Financial Aid
          personnel for NAA-New England. The information provided in response to the auditor's
          request included: (0 a list of lenders who had made loans to NAA and NAA-New
           England students in the past five years and (ii) a dear borrower letter which included a list
          designated as NAA-New England prefelTCd lenders. The list of lenders in the dear
          borrower letter were lenders still making student loans to NAA students following the
          eeonomic meltdown and tmmoil in the student loan market. I can only conclude that the
          dear borrower Jetter that is being designated as a                       list" by the auditors
          was puJled from the files by Ms. Zuluaga or                             in response to Mr.
          Wisniewski's request for infonnation fOf the entnulce                   Ms. Wells has stated
          that she had never seen thls ''preferred lender list" until Ms. Zuluaga provided it to her
          after the audit began and told her it had been provided to me auditors. Ms. WeUs stated
          that she has never used this list or any preferred lender list for that matter, and it was not
          in the procedures that she implemented in the Pall of2008 for use by NAA-New England
          after she was hired in mid·August 2008.

                  During the entrance inlerView with the USDOE OlG auditors, the auditors
          expressed to us that the scope of the audit was to determine whether the agreements
          between the institution and a11 lendcrs were in accordance with the Higher Education Act
          of 1965, as amended. The auditors ellpiaioed thaI the USDOE-OIG was here to help ,and
          would provide open dialogue and feedback. on progress. 11le auditors assured us that
          Ihere would be no surprises regarding findings or recommendations. NAA-New England
          feU confident there would be no findings because we bave no agreements with any
          lenders. As you coorumed in your draft audit repon, no improper agreements or
Final Report
ED-OIG/A02J0005                                                                                           Page 22 of 24



           arrangements with lenders were rouod duriog NAA New Eogland's period or ownership
           during the audit period. The audit continued rrom February through August 2009.
           During this period, any inrormation or interviews that were requested wert amnged.
           There was no indication from any oCtile auditors tbat there were any issu es.

                  On August 27. 2009 Mike Wisniewski. rece.ived an email with a PreJiminary
           Flnding Point Sheet attached for review and dise;u$$ion at Audit Exit Conference on
           August 31, 2009. The document iocluded a finding that a NAA New England preferred
           lender list was                     This was the fltSt indication of a finding IIlId was
                                                         .
           a total surprise. In                                  Wisniewski asked Ms. Zuluap
           and Ms. Wells about the issue.                         no JODaer employed. Both assured
           Mr. Wisniewski that a prefcmd lender       was not used ud not giveo to $lUden1$;. Mr.
           Wisniewski told the auditors this since he had no knowledge of such a list being used
           because NAA bas never bad any arrangements with lender to prefer one lender over
           another. I was also comfortable that NAA New Eogland had done nothiog improper
           because we never had any agreements, contracts, or inappropriate relationships wilh
           lendtrs.

                  The auditors were obviously confused by Mr. Wisniewski's answers at the exit
           conference since NAA-New England had supplied a document to the auditorS in the
           entrance conference thai said "NAA-New England prererred lender" 00 it. Attempting to
           explaio where the lender list came from. Mr. Wisniewski stated that it was possibly a
           form used by Wyo--Tech and updated to reflect NAA-New England. However, the list
           was never used or given 10 students.

                   Mr. Wisniewski's expJanation obviously gave the auditors the impression that the
           list was created to respond to the audit request. nus was the rarthest thing from the truth.
           If NAA-New England had anythina to hide., it certainly would not have provided this
           document. We obviously provided a document from our files that Deither of            NAA·
           New England financial aid managers, Ms. Zuluqa and Ms. Wells had used. At this
           point, NAA should have pointed out the mistake rather than to try and explain where that
           document may or may noc have come from. NAA's failure to do so was a mistake. but in
           no way was it an attempt to mislead the auditors and in no way was it a false document.

                   The "'preferre d lender list" provided to the auditors, but nOl used by NAA·New
           England staff obviously confused tbe auditors, Mr. Wisniewski simply tried to clarify
           this; however, in doing so it appears to have made the problem worse. After further
           investiption, we can only conclude that the former Wyo-Tech employees updated and
           used the Wyo-Tech prefened lender list. Futthec, these former Wyo-Tcch employees
           may have given it to students during the transition period before Ms. Wells implemented
           a new system in the Fall of 2008 Ms. Wells bas confirmed, however, that the use of any
                                            .




           Wyo-Tech forms was discontinued wben she implemented the new fiDucial aid foons in
           the FaIJ of 2008 Ms. Wells bas never used or maintained a preferred lender list. If such
                               .




           a former Wyo--Tech list was used in the transition period, it did not fully comply with the
           regUlations, but any such non-compLiance has long been rectified and no longer exists.

                  1 also want to reiterate the fact thaI this mistake occurred during NAA-New
           England's uansiti01l. aftor acquiring Wyo.-Tech. J also want to note that the problems
           inherent in any acquisition were compounded by the collapse of the student lending
           markets. Having looked back at the facts described, I can see that II; List may bave been

          ..,mo.'''......,'l
Final Report
ED-OIG/A02J0005                                                                                           Page 23 of 24




           used during the transition after the acquisition of Wyo- Tcch; however, if it was, the
           problem has now been rectified. Mike Wisniewski's records support lbese facts,
           Moreover, Donna We(U continues to maintain that a lender list is not used and that she
           has never                       she was hired in August 2008. rUlaliy, neither Lindsay
           Zuluga nor                   could be interViewed regarding the use of a lender list, as
           both of them are no longer employed byNAA-New England.

                      I also want to highlight the fact that NAAN
                                                                - ew England's financial aid staff
          follows a policies and procedure manual. This policies and procedures manual forNAA­
          New England clearly states on page 47 that "Based on current regulations, schools are not
          pennitted to have 'preferred' Of" 'ODe' lender," The above quoted provision is consistent
          with the financial aid systems Ms. Wells implemented and practices.

                        - ew England also makes a concerted effort 10 keep up with chatlges in
                     NAAN
          regulations regarding student loans, Donna Wells, Director of Financial Aid at NAA­
          New England regularly participates in webinars and attends conferences regarding
           regulatory topics, receives IFAP bulletins, receives Federal Registry [eUers, receives
           updates from Sallie Mae regarding federal regulations, receives updates and notification
           from our state guarantor (American Student Assistance), and consuJts the Blue Book..
           She also frequently discusses any changes in any financial aid rules and regulations and
           the implementation of tbose changes with Julie Prashad Ramirez, the Ditector of
           Financial Aid forNAA-Tampa Bay.

                     NAA-New England acts with competency and integrily and in the nature of a
           fiduciary in the administration of the Title IV. HEA programs. NAA is proud to have
           never been cited for non-compliance and will vigorously defend our moral intentions.
           Based on my investigation, NAA-New England may have violated 34 C.F.R. § 682.212
           by use o f a lender list that was provided to the auditors. However, any sucb use was for a
           very brief period, during the transition after our acquisition of NAA-New England. Any
           such non-compliance has been fully corrected and proper procedures have been
           implemented 10 ensure that they do not occur again. Such an error was not willful and
           simply does not rise to the level to warrant a fine against NAA New England or limit its
           participation under Title N programs. as described in 34 C.F.R. §668, Subpart G. Given,
           Mike Wisniewski's reputation and NAA's track record and history of regulatory
           compliance. we believe that no punistunent is appropriate.

                 NAA has never had an inappropriate relationship with a lender, which is verified
           by your audit and our annual compliance attestation examinations which were provided
           to you for the audit. and confIrmed in the attached letter rrom BKD, LLC. While we
           understand the seriousness of the audit findings, the enlire student lending industry will
           be changing again on July 1, 2010 to direct lending making Ihe lender p.refercnce issue
           moot. NAA was IlIl original approved participant in  the: Direct Lending Federal Student
           Loan Program when il started in 1993 and has continuously been an approved participant
           since that time. NAA and NAA·New England are fully prepared to implement the
           change to direct lending and hit the ground running when it begins on July 1,2010.

                    This entire situation bas been an unfortunate misunderstanding, but NAA-New
           England has always been forthright with US DOE. NAA-New England merely provided
           a list from their files 10 the auditors upon their request, but 10 be clear, we know that no
           lender list has been used since Donna WeUs joined our staff and implemenledNAA-New

           lI" 7J<.u' ",•.,.",
Final Report
ED-OIG/A02J0005                                                                                            Page 24 of 24




           England's financial aid systems and procedures in the Fall of 2008. Any non-compliance
           has been completely rectified and any use of a lender list was in the brief transition period
           following NAA's acquisition of Wyo-Tech. Not only have wc fixed this problem, but we
          continue to implement additional training procedures to prevent anything similar from
           happening again. NAA takes on a huge responsibility in trying to ensure safe reliable air
           transportation to the flying public everyday.       We take that responsibility and the
          responsibility for complying with all applicable USDOE and FAA rules and regulations
          very seriously.

                                                         Respectfully submitted,




                                                         Mac Elliott
                                                         Chainnan of the Board and Chief
                                                         Executive Office of National
                                                         Aviation Academy - New England


          Cc: Gina Jacobs