Closure of Audit of School As Lender - Process and Inducements

Published by the Department of Education, Office of Inspector General on 2006-08-28.

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


                          OFFICE OF INSPECTOR GENERAL 

                                 400 MARYLAND A VENUE, S.W.
                                  WASHINGTON, DC 20202-1500

MEMORANDUM                                                         AUG 2 8 2006
TO:            Theresa S. Shaw
               Chief Operating Officer
               Federal Student Aid       I \
FROM:          Helen Lew    -ff.dh-      LetJ
               Assistant Inspector General for Audit

SUBJECT:       Closure of Audit
               School As Lender - Process and Inducements
               Control No. ED-OIG/A04GOOOl

This memorandum advises you that we are closing our audit of the school-as-Iender
requirements. Out objectives were to 1) assess the management controls over the process for
approving schools as lenders, and 2) select lender schools for review to detennine if
arrangements with other eligible lenders may have violated the prohibited inducement provisions
ofthe Higher Education Act of 1965, as amended (HEA). Changes to the school-as-Iender
requirements in the Higher Education Reconciliation Act of2005 (HERA), Public Law 109-171,
have substantially limited the usefulness of an audit with these objectives.

To be a lender under the amended rules, a school had to have met requirements in the HERA at
the date of its enactment, which was February 8,2006, and had to begin making loans on or
before April 1, 2006. This effectively ended the opportunity for institutions to enter the program
and the need for an approval process. The HERA further restricts the use of proceeds from
loans, or the disposition of loans, for need based programs, with an exception for "reasonable
and direct administrative expenses." These amendments have made our first objective obsolete
and have substantially reduced the usefulness of a review under our second objective. As a
result, we are tenninating our audit.

The tennination ofthis audit does not preclude further reviews of this or similar areas by the
OIG in the future. Also, the tennination ofthis review does not preclude the Department of
Education from taking action concerning any aspect ofthe school-as-Iender requirements.

We wish to express appreciation for the cooperation and assistance extended by your staff during
the review. Should you have any questions regarding this review, please contact the Regional
Inspector General for Audit, Denise Wempe at 404-562-6477. No response to this memorandum
is required.

cc: 	   Marge White, Audit Liaison Officer, FSA
        Matteo Fontana, General Manager, Financial Partners