oversight

Resolution of Institutional Student Information Report/Student Aid Report C Codes Generated by the Central Processing System's Edit Check Process

Published by the Department of Education, Office of Inspector General on 2008-01-09.

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

                                UNITED STATES DEPARTMENT OF EDUCATION
                                       OFFICE OF INSPECTOR GENERAL
                                                                      Audit Services
                                                                   Region IV, Atlanta




                                                          January 9, 2008
                                                                                                    Control Number
                                                                                                    ED-OIG/A04G0002

Lawrence A. Warder
Acting Chief Operating Officer
Federal Student Aid
U.S. Department of Education
830 First Street, NE, Suite 112G1
Washington, DC 20002

Dear Mr. Warder:

This Final Audit Report, entitled Resolution of Institutional Student Information Report
(ISIR)/Student Aid Report (SAR) C Codes Generated by the Central Processing System’s (CPS)
Edit Check Process, presents the results of our audit. The purpose of the audit was to 1) evaluate
the effectiveness of the Department of Education’s (Department) process for ensuring that
institutions resolve ISIR/SAR C codes generated by the CPS, and 2) evaluate the effectiveness of
Federal Student Aid’s (FSA) process for monitoring and using data from comment codes. Our
review covered the CPS’ current edit check process and the Department’s use of the information.
Our audit period ended on August 28, 2006.



                                                      BACKGROUND 



CPS is the system that receives and processes application and correction information; as such,
CPS initiates the process of determining the applicant’s eligibility for Title IV, Student Financial
Assistance. CPS is managed by Pearson Government Solutions under a contract with the
Department’s FSA.

Upon receipt of students’ Free Application for Federal Student Aid (FAFSA), CPS completes a
series of quality control checks on the application data, in an effort to identify incomplete or
inconsistent data and to catch errors. Next, CPS performs database matches with the
Department’s National Student Loan Data System (NSLDS) and other Federal agency records
through interagency matching agreements to screen for applicant eligibility. Specifically, CPS
compares Social Security Number (SSN), selective service, citizenship, and veteran status
 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/A04G0002                                                                       Page 2 of 12

information on the FAFSA to other data available, including previous submissions, and data
matches with the Social Security Administration (SSA), Department of Veterans Affairs (DVA),
Department of Homeland Security (DHS), and the Selective Service (SS).

CPS calculates each student’s Expected Family Contribution (EFC) using the applicant
information and the Need Analysis formulas mandated in the Higher Education Act of 1965, as
amended (HEA). Then, CPS generates and sends a SAR to the aid applicant, and an electronic
ISIR to the postsecondary institutions that are listed on the student’s FAFSA.

Both the SAR and the ISIR contain the same information, which include the FAFSA
information, EFC, the student’s NSLDS history, and correction flags indicating corrections to
FAFSA data. The SAR and ISIR also contain comment codes, such as reject, ISIR/SAR C,
warning, and assumption codes.

• 	 Reject codes are generated by CPS when critical information in the FAFSA is found to be
    incorrect or questionable. The system does not calculate an EFC on the rejected FAFSAs.
    Without an EFC, Title IV aid cannot be awarded. It is the student’s responsibility to resolve
    the items in question and resubmit the FAFSA. Examples of incorrect or questionable data
    provided in the FAFSA that would result in reject codes include – a date of birth between
    1900 and 1930; missing first or last name; name match but no SSN match; an unusually high
    number of family members; marital status inconsistent with reported incomes; missing
    student signature; report of no taxes paid and/or taxes equal to, or greater than, the adjusted
    gross income; and SSN matched to an SSN with a date of death.

• 	 Other comment codes, such as, ISIR/SAR C codes, warning codes, and assumption codes are
    generated by CPS through data matches to point out a possible question about FAFSA data
    or to inform the applicant that an assumption was made on missing or inconsistent FAFSA
    data. Resolution of ISIR/SAR C codes or submission of correction data is not required for
    the system to calculate an EFC; however, institutions are required to retain documentation of
    ISIR/SAR C code resolution. Examples of questionable data from the data match that would
    result in ISIR/SAR C codes include – Pell grant or federal loan overpayments; no
    confirmation for qualifying veteran; no confirmation of U.S. citizenship; no confirmation for
    eligible non-citizen status; not registered for Selective Service; and a FAFSA response
    indicating drug related convictions.

The school Financial Aid Administrators (FAA) use the ISIR information to determine applicant
eligibility, and to calculate and award financial aid to students.

Most CPS development and customer service work is done at Pearson Government Solutions in
Coralville, Iowa, while CPS printing and production are done in Cedar Rapids, Iowa. Computer
Sciences Corporation operates the CPS database, which resides at the Virtual Data Center (VDC)
in Meriden, Connecticut. Application Processing is the division in FSA that oversees CPS
operations.
Final Report
ED-OIG/A04G0002                                                                        Page 3 of 12


                                      AUDIT RESULTS 



We found that FSA does not have a process to effectively monitor ISIR/SAR C code data to
ensure it receives the most accurate data from applicants. Specifically, FSA does not require
institutions to provide information on the resolution of ISIR/SAR C codes. Instead, FSA holds
institutions accountable for complying with applicable laws and program requirements under
their Participation Agreements. In addition, FSA does not use ISIR/SAR C code data to
determine which institutions should be selected for program reviews based on high occurrences
of these codes, nor does it have a tracking mechanism to monitor institutions with high
occurrences of ISIR/SAR C codes. As a result, FSA does not have effective controls to ensure
that applications with ISIR/SAR C codes are resolved, and that institutions are making eligibility
determinations based on accurate applicant data.

In its comments to the draft report, FSA did not specifically state whether or not it concurred
with our finding and related recommendations. However, FSA stated that its current audit and
program review processes for monitoring the resolution of ISIR/SAR C codes are effective,
indicating that FSA does not concur with our finding. FSA also indicated that it did not concur
with two of the three recommendations.

FSA had several concerns about facts presented in the report. Specifically, FSA disagreed with
our statement that FSA’s only monitoring mechanism for assuring institutions’ resolution of
ISIR/SAR C codes is through program reviews. FSA stated that it also uses schools’ annual
compliance audits to monitor the resolution of ISIR/SAR C codes. In our response, we explain
why FSA cannot rely on the annual compliance audits as a tool to monitor resolution. FSA also
disagreed with our statement that over $1.5 billion of Federal Aid was disbursed to students
whose eligibility may have been affected if ISIR/SAR C codes were not resolved. FSA stated
that this risk is overstated. Although we did not test the $1.5 billion at schools, our estimate is
based on the actual dollar amount of the FAFSAs in CPS with unresolved ISIR/SAR C codes
that could affect student eligibility. In the absence of revised/corrected FAFSA data in CPS,
FSA has no assurance that schools resolved the ISIR/SAR C codes. FSA’s response to the draft
report did not require us to change our finding or recommendations.

FSA commented that it is currently developing a new system, Integrated Partner Management
(IPM), to integrate, modernize, and reengineer FSA’s monitoring and oversight functions.
FSA’s comments and OIG’s response are summarized after the finding. The complete text of
FSA’s comments is included as an attachment to the report.

Use of ISIR/SAR C Code Data Could Ensure More Accurate FAFSA Data

CPS matches FAFSA data to information in NSLDS and information available in other Federal
agencies’ databases to ensure that FSA obtains the most accurate data from applicants. CPS
Final Report
ED-OIG/A04G0002                                                                                     Page 4 of 12

generates comment codes1 signifying that the data matches identified errors or inconsistencies in
the applicant’s FAFSA data. FSA receives reports2 showing the types of FAFSA errors being
made by applicants and the frequency of the error occurrences. According to the FSA
Application Processing Acting Director, occasionally, the School Participation Teams, formerly
Case Management and Oversight, request an individual institution’s comment code activity.
This is the only instance in which FSA will run an individual institution’s comment code activity
report.

Although ISIR/SAR C codes do not require resolution for CPS to calculate an EFC, institutions
are required to retain documentation of ISIR/SAR C code resolution because these codes indicate
missing or inconsistent information that could impact eligibility determinations. However, we
found that FSA does not have a process for ensuring that institutions resolve ISIR/SAR C codes
and retain the necessary documentation to support the determination of eligibility.

FSA’s only monitoring mechanism or internal control for assuring institutions’ resolution of
ISIR/SAR C codes is through institutional program reviews performed by FSA’s School
Participation Teams. However, out of 6,000 schools that participate in the federal student aid
program, the School Participation Teams completed less than 250 institutional program reviews
each year (FY 2004 – 224 reviews and FY 2005 – 219). Of the program reviews completed in
FY 2005, 78 were focused reviews3 that would not necessarily have included a step to review
institution’s resolution of ISIR/SAR C codes.

In addition, FSA is not using ISIR/SAR C code data to select which institutions should be
targeted for program reviews. FSA can run reports to identify comment code activity for all
institutions with ISIR/SAR C codes. Such reports could be used to select institutions that should
be monitored (through a program review) for ISIR/SAR C code resolution.

The 2001 Program Review Guide, published January 2002, states that

        The ISIR plays a very important role in identifying possible eligibility
        problems. When reviewing the ISIR, reviewers should look for “C”
        codes/comments and check the NSLDS section.

The U.S. Government Accountability Office’s Standards for Internal Control in the Federal
Government (GAO/AIMD-00-21.3.1) states that


1
  Comment codes include reject, ISIR/SAR C, assumption, and warning codes (see Background section for
definitions and examples).
2
  FSA receives reports from CPS’ edit checks, including an Edit System Analysis Report, a Reject Reason Analysis
Report, a Management Information Systems (MIS) report, a Highlight Analysis Report, and a Web Edit Analysis
Report. These reports present the frequency and percent of times a particular mainframe compute edit is triggered,
compares reject codes generated over multiple time periods, presents correction behavior of rejected applicants,
describes relationship of verification vs. corrections, describes correction behavior for electronically submitted
corrections vs. paper SAR submitted corrections, and makes a recommendation on whether to retain, discard, or
modify edits.
3
  Focused reviews are program reviews that focus on particular issues or subjects and do not include a
comprehensive review such as general program reviews.
Final Report
ED-OIG/A04G0002                                                                                    Page 5 of 12

        [Control activities] help ensure that actions are taken to address risks. Control
        activities are an integral part of an entity’s planning, implementing, reviewing,
        and accountability for stewardship of government resources and achieving
        effective results.

        Control activities occur at all levels and functions of the entity. They include a
        wide range of diverse activities such as approvals, authorizations, verifications,
        reconciliations, performance reviews…

        Activities may be classified by specific control objectives, such as ensuring
        completeness and accuracy of information processing.

FSA does not receive reports on the occurrence of ISIR/SAR C codes by institution, but rather
requests specific institutions’ ISIR/SAR C code data on a case-by-case basis. FSA lacks an
effective process to ensure that institutions resolve ISIR/SAR C codes, which is an internal
control weakness. In addition, FSA lacks the use of data on ISIR/SAR C codes in selecting
institutions for program reviews, which is a weakness in FSA’s risk assessment process.
According to FSA officials, the occurrence of ISIR/SAR C codes alone does not provide a basis
for selecting institutions for program reviews. However, FSA does not have effective controls
for monitoring and using ISIR/SAR C code data to assure institutions’ compliance with laws and
regulations for student eligibility. As a result, FSA cannot ensure that the school FAAs are
making eligibility determinations based on accurate applicant data.

Missed Opportunity to Identify Ineligible Applicants

Since FSA does not track whether institutions resolve ISIR/SAR C codes and it does not use the
ISIR/SAR C code data to determine which institutions should be targeted for program reviews,
we performed a data analysis of selected comment codes associated with ISIR/SAR C codes to
determine if institutions are resolving ISIR/SAR C codes on subsequent FAFSA submissions
(2004-2005 year). We identified six codes that, if not resolved, would affect the eligibility
determination. Those codes are as follows.

    •   030-SS (applicant not registered with Selective Service)
    •   038-NSLDS (Pell overpayments associated with applicant)
    •   056 (applicant answered yes to Drug Conviction question on FAFSA)
    •   144-DHS (applicant’s non-citizenship eligibility has yet to be confirmed)
    •   146-SSA (applicant’s U.S. citizenship cannot be confirmed)
    •   254-NSLDS (award over loan limits associated with applicant)

As shown in Table 1 below, the percentage of students that did not have these selected ISIR/SAR
C codes resolved on a subsequent FAFSA and were not verified4 ranged from 3 to 73 percent.

4
  Verification is the process in which FAAs are required to verify the following five major data elements on a
student’s FAFSA: household size, number enrolled in college, adjusted gross income, U.S. income tax paid, and
certain unearned income and benefits. For verification an applicant must produce tax returns and/or other
Final Report
ED-OIG/A04G0002                                                                                           Page 6 of 12

According to FSA officials, institutions are not required to submit revised FAFSAs in resolution
of ISIR/SAR C codes, but rather are required to maintain documentation verifying that the code
had been resolved. Also, officials added that FSA had no requirement for selecting FAFSAs
with ISIR/SAR C codes for verification. In our analysis, we classified revised and/or verified
FAFSAs (containing ISIR/SAR C codes) as applicants having ISIR/SAR C codes resolved
and/or student eligibility verified, and excluded them from the counts for unresolved codes
included in the table below.

                                  Table 1 – Total Comment Code Results
                                                                           Percent of
                                                                         students not
                                           Number of students            having code          Amount of Federal Aid
    Selected                                 not having code            resolved on a          disbursed to students
 SAR/ISIR C                                   resolved on a              subsequent               not having code
comment code            Number of          subsequent FAFSA5           FAFSA and not               resolved on a
 (listed on the          students          and not reported as            reported as         subsequent FAFSA and
previous page)        receiving code             verified                   verified          not reported as verified

030-SS                        108,838                      58,162                     53%                 $447,767,791

038-NSLDS                      61,510                      26,065                     42%                 $ 69,803,927

056                            18,265                          477                     3%                 $   3,460,033

144-DHS                        11,792                        1,827                    15%                 $ 10,934,088

146-SSA                       118,711                      86,246                     73%                 $812,849,201

254-NSLDS                      45,146                      16,500                     37%                 $168,975,507

Total                        364,262                     189,277                                      $1,513,790,547

Because FSA does not track or monitor whether the institution maintained documentation on
ISIR/SAR C code resolution, the number of unresolved ISIR/SAR C codes identified in our
analysis indicate that institutions may not be resolving all ISIR/SAR C codes.6 As a result, for
the 2004-2005 school year, over $1.5 billion7 of Federal aid was disbursed to students whose
eligibility may have been affected if ISIR/SAR C codes were not resolved.




documentation, for the institution to verify information on the FAFSA, as it relates to student eligibility. FAAs must
verify all applications the CPS selects for verification up to 30 percent of the institution’s total number of federal aid
applicants. Schools report the FAFSAs verified from the list of FAFSAs selected for verification.
5
  We also validated that the two ISIR/SAR C codes (144-DHS and 146-SSA) related to citizenship remained
unresolved through subsequent data matches with the other federal agencies.
6
  An applicant not having a code resolved on a subsequent FAFSA does not mean an institution did not resolve a
code. It means that the resolution information was not reflected in a corrected FAFSA.
7
  We did not test the $1.5 billion at the schools to determine whether the FAAs had corrected the ISIR information
in school files; however, we found no revised/corrected data in CPS.
Final Report
ED-OIG/A04G0002                                                                             Page 7 of 12

In addition, for selected ISIR/SAR C codes -- 030-SS, 038-NSLDS, 056, 144-DHS, 146-SSA,
254-NSLDS, we identified the five institutions that had the highest concentrations of students not
having the code resolved on a subsequent FAFSA or in CPS.8

To determine whether the identified institutions had program reviews during the 2004-2005 and
2005-2006 years, we searched the Postsecondary Education Participants System (PEPS), which
is a system that in part, contains program review information for postsecondary institutions that
participate in federal education programs. We found that none of the identified institutions had
program reviews for the 2004-2005 year and only one had a program review for the 2005-2006
year. The program reviewer for the one institution that had the program review said that she did
not test the comment code resolution as part of the program review.

We surveyed program reviewers in three randomly selected regions and were informed that
reviewers generally follow the review guide’s direction to verify that ISIR/SAR C codes are
resolved at the institution. However, program reviews are infrequent and often limited in scope.
As previously stated, out of approximately 6,000 participating schools, the School Participation
Teams completed 224 program reviews in FY 2004 and 219 program reviews in FY 2005. Of
those completed in FY 2005, 78 were limited scope reviews.

RECOMMENDATIONS

We recommend that the Acting Chief Operating Officer for FSA require Application Processing
to

1.1 	      Periodically obtain reports to track the frequency of ISIR/SAR C codes by school and
           identify institutions that are not resolving those codes.

1.2 	      Use these reports to select institutions for a program review that focuses solely on the
           resolution of ISIR/SAR C codes.

1.3 	      Develop and implement a policy that requires follow-up with institutions that have
           excessively high rates of unresolved ISIR/SAR C codes.

FSA Response

In its comments to the draft report, FSA did not specifically state whether or not it concurred
with our finding and related recommendations. However, FSA stated that its current audit and
program review processes for monitoring the resolution of ISIR/SAR C codes are very effective,
indicating that FSA does not concur with our finding. FSA also indicated that it did not concur
with two of the three recommendations.

FSA stated that program reviews are not the only monitoring mechanism or internal control for
assuring institutions’ resolution of ISIR/SAR C codes. In addition to program reviews, FSA uses
schools’ annual compliance audits to monitor the resolution of ISIR/SAR C codes. FSA stated

8
    An FAA can go on-line in CPS and correct the data without submitting a revised FAFSA.
Final Report
ED-OIG/A04G0002                                                                      Page 8 of 12

that a school’s independent auditor is required to review student eligibility and other items
associated with ISIR/SAR C codes. FSA stated that if the independent auditor finds that the
school failed to resolve ISIR/SAR C codes, then it would be identified as a finding in the
school’s compliance audit. FSA’s audit resolution procedures require schools to conduct a full
file review of Title IV recipients with ISIR/SAR C codes if their annual compliance report
identifies unresolved ISIR/SAR C codes exceeding an established threshold.

FSA stated that the risk to over $1.5 billion suggested by our report is overstated. According to
FSA, based on its review of 93 institutions’ audit and program review findings, the occurrence of
ISIR/SAR C code data alone does not support OIG’s contention that institutions may not be
resolving these codes. FSA maintained that it is unlikely that any students are receiving aid to
which they are not entitled due to the failure of schools to resolve ISIR/SAR C codes. FSA
stated that it reviewed the audit and program review findings from 2001 to present for the 93
institutions and did not identify any findings related to the failure to resolve the ISIR/SAR C
codes. Based on this review, FSA concluded that schools were resolving ISIR/SAR C codes.

In response to recommendation 1.1, FSA stated that it is in the process of developing the
Integrated Partner Management (IPM) system to integrate, modernize, and reengineer FSA’s
monitoring and oversight functions. FSA stated that recently in its IPM efforts, it has developed
a new risk module that includes excessively high rates of unresolved ISIR/SAR C codes as a risk
factor. FSA stated that it will use this new risk module to augment their existing procedure for
monitoring the resolution of ISIR/SAR C codes.

In response to recommendation 1.2, FSA stated that its review of the 93 institutions’ audit and
program review findings did not result in the identification of findings related to a school’s
failure to resolve ISIR/SAR C codes. As such, FSA stated that the effectiveness of their
processes for monitoring the resolution of ISIR/SAR C codes is supported, and that no further
action is required.

Finally, in response to recommendation 1.3, FSA stated that it currently has a policy providing
procedures for appropriate follow-up with institutions to resolve audit findings. FSA stated that
this includes findings related to ISIR/SAR C codes that exceed the established threshold for
error.

OIG Comments

FSA provided no additional information to cause us to change our finding or recommendations.
FSA stated that in addition to program reviews it also uses schools’ annual compliance audits to
monitor the resolution of ISIR/SAR C codes; however, FSA has no assurance the ISIR/SAR C
codes are selected and tested for resolution. Although FSA stated that it relies on the annual
compliance audits, we did not change our statement that program reviews are FSA’s only
monitoring mechanism, because program reviews are the only monitoring mechanism initiated
and performed by FSA.

In addition, annual compliance audits cannot be relied on to ensure resolution of ISIR/SAR C
codes for the following reasons –
Final Report
ED-OIG/A04G0002                                                                                         Page 9 of 12


• 	 According to the U.S. Department of Education’s Audit Guide, Audits of Federal Student
    Financial Assistance Programs at Participating Institutions and Institution Servicers, for
    annual compliance audits of proprietary schools, auditors must use a random sample of at
    least 50 students9 to test student eligibility compliance requirements. However, FSA has no
    assurance that the sample will include any unresolved ISIR/SAR C codes since the selection
    process does not have a mechanism to ensure inclusion.

• 	 According to the Office of Management and Budget (OMB) Circular A-133, Audits of States,
    Local Governments, and Non-profit Organizations, entities that receive less than $500,000 in
    Federal funds, are not required to have a single audit performed. Therefore, FSA cannot use
    annual compliance audits to monitor the resolution of ISIR/SAR C codes for institutions that
    receive less than $500,000.

• 	 Some non-profit and public schools’ Title IV programs may not be selected for review for
    auditing purposes under OMB Circular A-133 because the programs are not considered
    major programs10. In such cases, FSA cannot use single audits to monitor the resolution of
    ISIR/SAR C codes for the Title IV programs not reviewed because the auditor cannot attest
    to the resolution of the codes within those programs.

• 	 The OMB Circular A-133 Compliance Supplement does not require minimal sample sizes or
    random samples. Thus, only a few students may be selected for review of student eligibility,
    and FSA has no assurance that a student with unresolved ISIR/SAR C codes is selected for
    testing.

Based on our review of the guidance for compliance audits, FSA cannot rely on annual
compliance audits as a tool for monitoring resolution of ISIR/SAR C codes. FSA needs
additional tools for monitoring and oversight to ensure institutions resolve ISIR/SAR C codes.
As mentioned in the finding, the U.S. Government Accountability Office’s Standards for
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1) states that

         Control activities occur at all levels and functions of the entity. They include a
         wide range of diverse activities such as approvals, authorizations, verifications,
         reconciliations, performance reviews…




9
  There is an exception to the number if universe of students is less than 200, in which case, the auditors must select 

a minimum random sample of 25 percent of the universe.

10
   Major programs are federal programs that the auditor has identified as 1) Type A programs (may exclude if low-

risk) and 2) high risk Type B programs. Type A programs are Federal programs with large Federal awards

expended during the audit period that exceed established thresholds set forth in OMB Circular A-133 Subpart B.520.

Type B programs are Federal programs not labeled as Type A. 

Final Report
ED-OIG/A04G0002                                                                        Page 10 of 12

The absence of audit findings in the audits reviewed by FSA cannot support a conclusion that the
risk associated with unresolved ISIR/SAR C codes is overstated. In addition, the absence of
program review findings in program reviews reviewed by FSA cannot support the conclusion
that the risk associated with unresolved ISIR/SAR C codes is overstated. FSA did not provide
any information regarding how many of the 93 institutions actually had a program review
performed during the time period reviewed, nor did FSA provide information on how many of
the program reviews were focused reviews and may not have necessarily included a review of
ISIR/SAR C code resolution. As presented in our finding, relying on program reviews is not
effective because of the limited number performed, and the frequency of ISIR/SAR C codes is
not a basis for schools selected for program reviews. The absence of findings does not provide
assurance that schools in fact resolved ISIR/SAR C codes.

FSA stated that it has a process in its audit resolution for following up with institutions that have
audit findings consisting of excessively high rates of unresolved ISIR/SAR C codes, including
requirements that schools with rates above a set threshold perform full file reviews. However,
we did not limit the recommended follow up action in Recommendation 1.3 to resolution of
audits that may have findings related to high rates of unresolved ISIR/SAR C codes. To develop
effective controls, FSA should use the reports obtained in response to Recommendation 1.1 to
take effective, affirmative follow up action to ensure that ISIR/SAR C codes related to statutory
conditions for proper payment for Title IV aid are resolved. FSA had system reports available
during our audit period to monitor ISIR/SAR C codes, but did not use those reports to monitor
resolution or to select schools for program reviews. FSA should do more than passively await
the receipt of audit findings related to unresolved ISIR/SAR C codes. We acknowledge FSA’s
current development efforts of the IPM system that will recognize excessively high rates of
unresolved ISIR/SAR C codes as a risk factor for program review selection. However, FSA
should develop additional controls to track and monitor schools that do not resolve ISIR/SAR C
codes.



                  OBJECTIVES, SCOPE, AND METHODOLOGY 



The objectives of our audit were to 1) evaluate the effectiveness of the Department’s process for
ensuring that institutions resolve ISIR/SAR C codes generated by the CPS, and 2) evaluate the
effectiveness of FSA’s process for monitoring and using data from comment codes.

We audited CPS data for FAFSA submissions in the 2004-2005 year. We conducted our
fieldwork between November 2005 and August 2006, which included site work at FSA
headquarters in Washington, DC, during November 2005. We identified the policies,
procedures, and internal controls established regarding the use and resolution of CPS comment
codes and edit checks. We also conducted interviews of an Application Processing official, the
CPS Project Manager, Management Program Analyst, and a Schools Participation Management
official. We reviewed the HEA, regulations, and written policies and procedures pertaining to
comment code data and the resolution of comment codes, including the SAR/ISIR Comment
Final Report
ED-OIG/A04G0002                                                                                       Page 11 of 12

Codes and Text 2004-2005 and 2005-2006, the ISIR Guide 2004-2005 and 2005-2006, and the
2004-2005 Federal Student Aid Handbook.

We performed an analysis of selected ISIR/SAR C codes to determine whether or not
documentation existed to indicate that institutions were resolving the codes – an updated
FAFSA, corrected information in CPS, or FAFSA verification. Specifically,

     • 	 From a universe of 51 comment codes associated with ISIR/SAR C codes for the 2004-
         2005 CPS processing year, we identified the following six codes11 that could affect the
         eligibility of the applicant, if not resolved.
                  030-SS             

                  038-NSLDS 

                  056 

                  144-DHS 

                  146-SSA 

                  254-NSLDS 


     • 	 We used the assistance of our Computer Assisted Assessment Technology group to select
         all ISIR records with these codes, which totaled 364,262 as detailed in Table 1.

     • 	 We compared the SSN of the applicant with 2004-2005 disbursement data in NSLDS to
         determine if aid was disbursed.

     • 	 For the ISIR records that had a corresponding aid disbursement, we reviewed subsequent
         FAFSAs to determine if there was a change to the data element relating to the ISIR/SAR
         C code on the original FAFSA.12

     • 	 We identified those applications for which the questionable data element was not 

         changed in subsequent FAFSAs, which totaled 189,277 as detailed in Table 1. 


     • 	 We sorted the identified applications by institution where the aid was disbursed. We
         determined if there were any patterns of unresolved ISIR/SAR C codes occurring more
         often at specific institutions.

For the 2004-2005 and 2005-2006 program years, we determined through a review of
information in PEPS whether program reviews were performed for institutions identified in our
analysis.

To achieve our audit objectives, we relied on computer-processed data obtained from the CPS to
determine the number of FAFSAs receiving selected ISIR/SAR C codes. We tested the reliability
of the data by matching student data obtained from NSLDS (name and SSN). We performed
additional analyses of subsequent application identification information, verification data, loan
11
   The codes were judgmentally selected as the six most likely to affect eligibility determinations based on the nature 

of the code. 

12
   An applicant not having a code resolved on a subsequent FAFSA does not mean an institution did not resolve a 

code. It means that the resolution information was not reflected in a corrected FAFSA. 

Final Report
ED-OIG/A04G0002                                                                      Page 12 of 12

amounts and disbursement dates. We concluded that the data was sufficiently reliable to be used
in meeting the audit’s objectives.

An exit conference was held on January 26, 2007. On June 20, 2007, we contacted FSA and
verified that the condition contained in the audit had not changed, and that no changes had taken
place within FSA that would have a significant impact on the condition as discussed in the exit
conference. Our audit was performed in accordance with generally accepted government
auditing standards appropriate to the scope of the review described above.



                            ADMINISTRATIVE MATTERS



Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System (AARTS). The Department’s policy requires that you develop a final
corrective action plan (CAP) for our review in the automated system within 30 days of the
issuance of this report. The CAP should set forth the specific action items, and targeted
completion dates, necessary to implement final corrective actions on the findings and
recommendations contained in this final audit report. An electronic copy of this report has been
provided to your Audit Liaison Officer(s).

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

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.

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.

If you have any questions, please call Denise M. Wempe at 404-562-6477.

                                             Sincerely,

                                             /s/
                                             Keith West
                                             Assistant Inspector General for Audit
Attachment
Attachment
                                                                         FEDERAL 

                                                                         STUDENT AID 




                                            U IIll<.WI:I{,\II.'\.(; UFFICL!{

  TO:             George A, Rippey                                                                         SEF 2 'I 2007
                  Acting Assistant Inspector General for Audit Services
                  Office of Inspector General

  FRO;\1:        Lawrence A, \Varder~/7ao~
                                     /s/        _ _..,
                 Acting Chief Operating Officer        ~~                           J
  SljBJECT: 	    Response to Draft Audit Report - Resolution ofInstitutional Student In/ormation
                 Report (/SIR)/Student Aid Report (SAR) C Codes Generated by the Central
                 Processing Systelll 's (CPS) Edit Check Process
                 Control Number ED-OIGI A04G0002

  Thank you for providing us with an opportunity to review and respond to the Office of Inspector
  General's draft audit report, Resolution of Institutional Student Information Report (ISIR)/
  Studf'lIl Aid Report (SAR) C Codes Generated by the Central Processing System's (CPS) Edit
  Check Process. The report concludes that Federal Student Aid does not monitor and effectively
  use Free Application for Federal Student Aid (FAFSA) comment code data to ensure it receives
  the most accurate data from applicants.

  Federal Student Aid recognizes the importance of intemal controls to program integrity and
  continually seeks to improve the effectiveness of our processes. As such, we are currently
  developing a new system, Integrated Partner Management (lPM), to integrate, modemize, and
  reengineer Federal Student Aid's monitoring and oversight functions.

  Recently, in [PM development, we completed requirements for a new risk module to identify
  schools that have excessively high rates of unresolved ISIRJSAR C codes. This process will
  augment our existing procedure for monitoring the resolution of C codes. When issues are
  identified, appropriate follow up action is initiated to identify the nature of the problem and
  whether the best course of action is to conduct a program review at the school, or provide
  training or technical assistance.

  We do have several cone ems about the facts presented in the draft report that we would like you
  to consider as you prepare your final report.

  Program Reviews Are Not Federal Student Aid's Only Monitoring Mechanism

 The draft report states that Federal Student Aid's only monitoring mechanism or intemal control
 tor assuring institutions' resolution of rSIRJSAR C codes is through program reviews. In fact,
 Federal Student Aid uses schools' annual compliance audits to monitor the resolution of the
 codes, Both the SF A Audit Guid e and the A-133 Compliance Supplement
 (scciltl )1: /1\\ ww. cd, gov:abollto I'ti ces,' li5t 'oi g/non fcd /nftcam ,htllll

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 (http: .· \\\\\\.c(I.~o\ about ofticcs list oi~! nonfed , sfa.htl11l) require the school's independent
 auditor to review student eligibility and revie\v the items that \vould be associated with the C
 codes identified in this report. (Please see Attachment B to this response for examples of SAR
 and ISIR comment codes as \\cll as the guidance schools are required to foIIO\\.' .)

The school's failure to resohe ISIR SAR codes \vould be identified as a finding in the school's
compliance audit. If the failure to resolve C codes meets a set threshold, Federal Student Aid's
audit resolution procedures require the school to conduct a full file review of all Title IV
recipients \vhose ISIR;SAR codes contained C codes and provide documentation to support
resolution of the C code prior to disbursing Title IV funds. Based on the actual disbursements
made to the student aid recipients, a liability would be established for all funds disbursed for
which the C code(s) had not been resolved.

Risk Suggested by the Report is Overstated

The repOli suggests that for the 2004-2005 school year over $1.5 billion of Federal Aid was
disbursed to students whose eligibility may have been affected ifISIRJSAR codes were not
resolved .

Federal Student Aid does not believe that the occurrence ofC code data alone supports OIG's
contention that institutions may not be resolving these codes. In fact, Federal Student Aid
analyzed the school data OIG provided at the exit conference, indicating 18 institutions with the
highest occurrences of C codes that were unresolved on a subsequent FAFSA. The 18 schools
included two large school systems with many affiliated schools, a total of93. We reviewed the
audit and program review findings from 2001 to present for all 93 schools that had separate OPE
ID numbers, and we did not identify any findings related to the failure to resolve the C codes
resulting in a liability.

Based on this research, schools are resolving C codes. Therefore, it is unlikely that any students
are receiving aid to which they are not entitled due to the failure of schools to resolve C codes.
Furthermore, we feel our current audit and program review processes for monitoring the
resolution of C codes are very effective.

That said, Federal Student Aid is continuously implementing new measures to strengthen its
monitoring and oversight of schools, including identifying the ISIR/ SAR C code as one of
several risk indicators in the new lPM risk management module .

Attachment A provides our response to each recommendation. Again, we appreciate the
opportunity to review and comment on the draft report.

Attachments

cc : 	 Denise M. Wempe, Regional Inspector General Atlanta
       Patrick J. Howard, Director, Student Financial Assistance Advisory & Assistance Team




                                                                                                      2
Attachment A- Federal Student Aid's Response to Recommendations
Resolution of ISIR SAR C Codes Generated by the CPS' Edit Check Process
(A04-G0002)

Finding: Federal Student Aid Does not Have a Process to Effectively Monitor rSIRlSAR C
Code Data to Ensure It Recei\'{~s the Most Accurate Data from Applicants.

Recommendation 1.1: Periodicol(r obtain reports to track thefreqllency of SAR C codes b.v
school alld identifj' institlltions that are not resolving those codes.

Federal Student Aid's Response: Federal Student Aid has completed requirements for the IPM
risk management module that 'vvill identify ISIRISAR C codes as a risk indicator that will be used
in conjunction with other risk factors to determine what kind of action is required. Appropriate
action may include program reviews, technical assistance, or training, as warranted.
Requirements for this module were completed August 6,2007.

Recommendation 1.2: Use these reports to select institutions for a program review that focuses
solely on the resolution of fSIR ISAR codes.

Federal Student Aid's Response: Federal Student Aid has conducted an analysis of audit and
program review findings related to ISIRISAR C codes to identify schools that may not be
resolving these codes . The analysis included findings from 2001 to present for aU 93 schools
that had separate OPE ID numbers identified in the OIG audit. We did not identify any findings
related to the failure to resolve the C codes that resulted in a liability. The analysis was
conducted February I, 2007, and supports the effectiveness of our current processes for
monitoring the resolution of C codes. As a result, no further action was required.

Recommendation 1.3: Del'elop and implement a policy that requiresfollow-up with institutions
that have excessively high rates ofunresolved fSIRISAR codes.

Federal Student Aid's Response: Federal Student Aid's Compliance Audit Standards currently
provide procedures for appropriate follow up with institutions to reso lve audit findings, including
findings related to ISIRISAR C codes, that exceed the established threshold for error. The
procedures were implemented February 2,2006.




                                                                                                  3
Attachment B- ISIR'SAR Codes and Associated Requirements.'Guidance
Resolution of ISIRSAR C Codes Generated by the CPS' Edit Check Process
(A04-G0002)

When a Free Application for Federal Student Aid (FAFSA) is submitted to the CPS for
processing, CPS will match the application data with the external agencies listed below:

    •   Social Security Administration (SSA)
    •   Department of Homeland Security (DHS)
    •   Selective Service (SS)
    •   Veteran's Affairs (VA)
    •   National Student Loan Data Systems (NSLDS)
    •   Department of Justice (DOl)

If there was a problem with the match, the SAR and ISIR will have a C code and comment
explaining the nature of the data matching error and information about how to resolve it.

C codes must be resolved before the school can disburse aid to the student. Federal Student Aid
provides guidance to the school in the ISIR Guide regarding the steps the student needs to follow
and documentation the student needs to provide to document that the C code has been resolved.

The school is responsible for collecting and maintaining the documentation that verifies the data
matching error that resulted in the C code has been resolved. The school does not send in any
electronic notification to the CPS to indicate that the data has been collected in order to generate
a new transaction eliminating the C code.

In some cases, a C code can be el iminated from a subsequent transaction. If the student makes a
correction to fields related to the match, the F AFSA infonnation will go through the external
match again. If the external system that indicated the failed match on a prior transaction has
been updated, the C code could be eliminated.

The table on the following pages provides examples of SAR and ISIR Comment Codes that
would result in a C code as well as the procedures schools must follow .




                                                                                                  4
    Comment Code 	    I Instructions in ISIR Guide I              Guidance to Schools
                      I

l                    I	         for  Resolution         I
   030- Selective    i Resolution required.             i If the student is not registered, is
I Sen'ice Match                                         I  26 years or older, and does not
                     I
I
   C-Code            ! In order to resol\'e SAR C          qualify for an exemption from
I Match Flag - N     I Code student must:               I registration, the school may not
I (~latch conducted,                                    I disburse aid to the student until it
I Applicant not in I • Register with Selective             detem1ines, based on relevant
I  Selective Service       Sen' ice,                      evidence/documentation, that the
  database)                                               student did not knowingly and
                       • 	 Present appropriate            willfully fail to register.
                           confirmation (for
                           example, his Selective         Except for students who are 18 to
                           Service Registration           25  who don't match SS's database,
                           Acknowledgement or             and who make a correction on their
                           letter of registration) that   SAR   requesting ED to register
                           he is already registered, or them for selective service, there is
                                                          no way for the student or school to
                       Qualify for a waiver or 
          eliminate the SAR C Code.
                       exemption. 

  038 - NSLDS          Resolution required.               A student generally isn't eligible
  Match                                                   for FSA funds if s/he owes an
  C - Code                                                overpayment on an FSA grant and
  Match Flag - 3                                          has not made satisfactory
  (Match conducted.                                       repayment arrangements.
  Overpayment held
  by school)                                              Schools must document that the
                                                          overpayment has been resolved
                                                         before disbursing aid .
                                                         Documentation is a written
                                                         communication from the school
                                                         that holds the overpayment.

                                                        Only the school where the
                                                        overpayment    occurred    can
                                                        change the overpayment data in
                                                        NSLDS.

                                                        Neither the student nor the new
                                                        school can eliminate the SAR C
                                                        Code.




                                                                                                 5
   Comment Code          Instructions in ISIR Guide for '          Guidance to Schools
                                    Resolution
; 056 - Drug            Resolution required.                 If school gets documentation
I Con\"iction                                             I from       the    student      (e.g.,
I C- Code               Applicant is not eligible for     I compl.e ~ion.        of       drug
I (Applicant            federal aid .                     . rehablhtatlOn program), the I
: response to                                                school can disburse aid to the
! Question 31 was       If the response to the dmg           student.
  "Y es" on the paper   conviction question is incorrect,
  FAFSA)                applicants should follow the         We have not instmcted schools
                        directions in the comment text to to update answers to the dmg
                        make a change to the question.      question because changes could
                                                            result in inadvertent and
                                                            incorrect disbursement of aid to
                                                            students (e.g., for students who
                                                            submitted documentation of
                                                            completing a dmg rehabilitation
                                                            program, changing a "3" to a
                                                            "1 " would make it appear that
                                                            the student was eligible for the
                                                            entire year, when in fact they
                                                            regained eligibility on the date
                                                            they completed the program. A
                                                            "3" response to this question,
                                                            along with a SAR C Code
                                                            makes it clear to schools,
                                                            including transfer schoo ls, that
                                                           they need to collect
                                                           documentation from the student
                                                           about the dmg conviction before
                                                           disbursing aid.




                                                                                                    6
    Comment Code         Instructions in ISIR Guide for           Guidance to Schools
                                   Resolution
   1.+.+ - DHS           Resolution required.                ; The primary DHS match can
I     .
I Primary                                                    I lead to "false" non-matches 


  Verification          ! DHS \\ill conduct the Secondary 
 because the DHS database is not
I C - Code              : Confinnation process based on        complete.
I
  Match Flag - N          the applicant's identifier and 

  (Match conducted. 
     Primary Verification                 A secondary confiI111ation 

  DHS did not 
           information. The next steps 'vvill process finds records that could
  confinn applicant's     depend on results from               not be found during the 

  non -citizen 
          Secondary COnfiI111ation match       automated primary verification
  eligibi Iity)           resu lts .                           process.

                                                            In more than a few cases where
                                                            primary and secondary
                                                            confinnation do not confinn
                                                            eligible non-citizenship status,
                                                            schools must LIse the paper
                                                            G-845S confirmation process.

                                                           As a result of the G-84SS
                                                           paper process, some students
                                                           will have their eligible non­
                                                           citizenship status confirmed,
                                                           but neither the school nor the
                                                           student can eliminate SAR C
                                                           Codes resulting from the DHS
                                                           match.




                                                                                                7
          Comment Code       I Instructions in ISIR Guide for         /1         Guidance to Schools
                             i           Resolution
    I    1.+6 - SSA Match    , Resolution required.                        Naturalized     citizens    and
    I   for Citizenship     i                                              students born abroad to U.S.
    I   C - Code            ; If the student is a U.S. Citizen,            citizens are also U.S. citizens,
        ~atch Flag - B, C, I the student should provide a                  but periodically the student's
        D, 
                  birth certificate, passport, or              citizenship status is        not
        E, F, or * 
          other documents to the school to             captured correctly in SSA's
        (:Match conducted. 
 prove citizenship. Voter                      database and the student fails
        SSA did not 
         registration cards are not                   the citizenship match.
        confirm U.S. 
        adequate proof of citizenship
        Citizenship) 
        since many localities do not                 Students can document
                              require proof of citizenship.                citizenship by providing the
                                                                           school with a "Naturalization
                                 If the student is an eligible non­        Certificate," a "consular Report
                                 citizen, slhe should correct the          of Birth Abroad," or a
                                 citizenship question on the               "Certification of Report of
                                 F AFSA/SAR to indicate that               Birth."
                                 slhe is an eligible non-citizen
                                 and provide a valid Alien                 There is nothing the school can
                                 Registration Number. CPS will             do to eliminate the SAR C Code
                                 send the record to DHS. If                for this match.
                                 DHS confirms the student's
                                 eligible non-citizen status,
                                 comment 146 and related C
                                 Code will be suppressed, and no
                                 further resolution is necessary.
        254 - NSLDS              Resolution required.                      Students must provide schools
        Match                                                              with documentation that they
        C - Code              In general, students who borrow              have affirmed with their
        (Subsidized or        in excess of aggregate loan                  lender that they will repay the
        Combined Loan         limits are ineligible to receive             excess funds.
        Total exceeds loan    further Title IV assistance;
        limits based on       however, if the school                       The excess funds will remain
        NSLDS Loan           detennines that the student                   as an overage and the SAR C
        Limit Flags)          inadvertently borrowed in                    Code can never be eliminated.
                             excess of the limits, the student
                             may regain eligibility by either
                             repaying the amount bOlTowed
                             in excess of the aggregate limits,
                             or making repayment
                             anangements for the excess

                     ~
                             amount that are satisfactory to
-           --   -                       

                             the holder of the loan.




                                                                                                              8