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 . • ""'0. ,••", 0,,,,. ,••" ... ...", A••, ,.. 9" '/'"'' ",,,,.•,,.,000 ,". ,,,.,,,·,00, "",,-,,",... 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
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)