oversight

Hurricane Relief Funds Provided to Mississippi Institutions of Higher Learning

Published by the Department of Education, Office of Inspector General on 2006-08-25.

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

                      UNITED STATES DEPARTMENT OF EDUCATION 

                           OFFICE OF INSPECTOR GENERAL 


                                  400 MARYLAND AVENUE, S.W.
                                   WASHINGTON, DC 20202-1500


                                         August 25, 2006



FINAL MANAGEMENT INFORMATION REPORT
Student Financial Aid No. 06-01

TO:            Theresa S. Shaw
               Chief Operating Officer
               Federal Student Aid

FROM:          Helen Lew /s/
               Assistant Inspector General for Audit

SUBJECT:       Hurricane Relief Funds Provided to Mississippi Institutions of Higher Learning
               Control Number ED OIG/A04-G0014

The purpose of this information report is to close out our audit by informing you of the results of
our work to date on our audit of Hurricane Relief Funds Provided to Mississippi Institutions of
Higher Learning. At this time we are unable to fully meet our audit objectives because the
Mississippi Institutions of Higher Learning (IHL) has until September 30, 2006, to obligate the
hurricane relief funding, and material events may occur in IHL’s administration of the hurricane
relief funding that could impact our current assessment. We will begin a separate audit to assess
IHL’s final distribution of the hurricane relief funds and perform additional audit work after the
completion of the funding period ended September 30, 2006.

The audit was initiated to evaluate IHL’s administration of the $95 million appropriation
authorized by the Department of Defense, Emergency Supplemental Appropriations to Address
Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 (Public Law 109-148).
Specifically, our audit objectives were (1) to assess IHL’s methodology for allocating hurricane
relief funds to schools, and to evaluate the adequacy of information provided by schools to IHL;
and (2) to identify and assess IHL’s controls over the accounting for the hurricane relief funds
and compliance with laws and regulations. Our work covered the period February 1, 2006, to
July 20, 2006.

IHL has implemented a methodology to allocate hurricane relief funds to its institutions and to
make hurricane relief assistance awards to eligible students through the Special Leveraging
Educational Assistance Partnership (SLEAP) Program. For the $50.5 million in hurricane relief
funds spent as of July 20, 2006, through the SLEAP Program, IHL appears to have implemented
Final Management Information Report
Student Financial Aid No. 06-01                                                         Page 2 of 7

an adequate internal control system. In our initial audit work performed in March through May
2006, we found that some institutions may have difficulty spending their full allocation of
hurricane relief funding. In July 2006, after our initial audit work, IHL reallocated hurricane
relief funds to institutions and received affirmation from each institution that it intend to fully
obligate hurricane relief funds by September 30, 2006.

Background

As a result of the effects of Hurricanes Katrina and Rita, IHL received an appropriation of $95
million authorized by the Department of Defense, Emergency Supplemental Appropriations to
Address Hurricanes in the Gulf of Mexico, and Pandemic Influenza Act, 2006 (Public Law 109-
148) to provide hurricane relief funding to Mississippi higher education students. IHL developed
a methodology to provide hurricane relief funding to affected students through the SLEAP
Program. IHL’s methodology was in accordance with its agreement with the Department of
Education (Department), Federal Student Aid (FSA), signed on January 24, 2006, governing its
administration of the $95 million in hurricane relief funds. The agreement reflects IHL’s intent
to deliver the hurricane relief funds to students through the SLEAP Program.

With the assistance and approval of the Department, IHL developed a SLEAP Policy to provide
direction to the participating institutions on eligibility requirements for the SLEAP Program.
The Federal Emergency Management Agency (FEMA) designated the entire State of Mississippi
as a hurricane impacted area, which, as provided by the SLEAP Policy, made all higher
education students in Mississippi potentially eligible for hurricane relief funding. To participate
in the SLEAP Program, students were also required to attend an institution that met the definition
of an institution under Section 102 of the Higher Education Act of 1965, as amended (HEA), and
to meet the student eligibility criteria to receive Title IV funds. As a result, hurricane relief
funding was provided to students who attended large public universities, community colleges,
private nonprofit colleges, and proprietary schools throughout Mississippi.

Recent changes enacted on June 15, 2006, in the Emergency Supplemental Appropriations Act
for Defense, the Global War on Terror, and Hurricane Recovery, 2006 (Pub. L. 109-234) will
allow hurricane relief funds provided to IHL to be spent for institutional purposes under Title VII
of the HEA. The Director of the IHL SLEAP Program informed us that IHL does not plan to
redirect any of the $95 million in hurricane relief funds to Title VII programs. The Director
stated that the hurricane relief funds must be obligated by September 30, 2006, and the number
of steps to accomplish the redirection of hurricane relief funds before this time would make it
unrealistic to implement a program to use hurricane relief funds for institutional purposes under
Title VII.
Final Management Information Report
Student Financial Aid No. 06-01                                                           Page 3 of 7

IHL Allocation Methodology In Accordance With SLEAP Program
Regulations

IHL used its existing Leveraging Educational Assistance Partnership (LEAP) Program allocation
formula, as approved by FSA in May 2005, as a basis for distributing the hurricane relief funds.
The existing LEAP participation agreement with FSA was amended to incorporate the SLEAP
Program on February 1, 2006. The LEAP formula prorates the hurricane relief funds allocated to
institutions based on the number of attending students and the average cost of attendance for all
participating institutions. IHL also requested an estimate of expected hurricane relief funding
needs from each institution participating in the SLEAP Program. The IHL Director stated that
due to the short time period to disburse the hurricane relief funding, IHL did not provide detailed
guidance to institutions about the method that should be used to calculate this estimate of
hurricane relief funds needed.

During the initial allocation of hurricane relief funds in February 2006, if an institution identified
less hurricane relief needs than the amount calculated under IHL’s current SLEAP allocation
formula, the excess funds were placed in a pool and redistributed to Mississippi’s five largest
coastal institutions. As a result, $33.5 million in hurricane relief funds were redistributed to the
five largest coastal universities and colleges in addition to what they received under the initial
SLEAP formula allocation. IHL management limited the reallocation of hurricane relief funds to
the five largest coastal institutions because coastal universities and colleges were the most
impacted by Hurricane Katrina.

At the time of the initial allocation, IHL informed the institutions that it would make a
reassessment of the institutions’ use of the hurricane relief funds in June 2006 based on actual
experience in making SLEAP grant awards to students. In June 2006, institutions requested IHL
to redistribute $376,000 that had originally been allocated to them to other institutions that had
remaining hurricane relief funding needs. IHL reallocated the $376,000 in hurricane relief funds
to four small institutions that during the initial allocation had requested significantly less
hurricane relief funds than were allowed by the SLEAP allocation formula. The IHL SLEAP
Director also required the institutions to reassert that they would obligate all their hurricane relief
funds by September 30, 2006. As of July 19, 2006, IHL through its participating institutions has
awarded approximately $50.5 million (53 percent) in SLEAP grants to students.

IHL Implemented Controls Over Use of Hurricane Funds

IHL appears to have implemented a reasonable control system over the use of hurricane relief
funds. IHL used its existing student financial aid systems to implement controls over the SLEAP
Program that was used to provide hurricane relief funding. IHL’s Mississippi Office of Student
Financial Aid (MOFSA) has experience administering FSA and State grant programs for the
state universities in Mississippi. IHL incorporated its existing controls over the LEAP Program
into its SLEAP Program when it was created to use the hurricane funding. Based on our review
Final Management Information Report
Student Financial Aid No. 06-01                                                       Page 4 of 7

to date, we did not identify any significant internal control weaknesses from IHL’s past Office of
Management and Budget (OMB) Circular A-133 audit reports.

To evaluate the controls over the SLEAP Program, we interviewed IHL staff and reviewed
documentation related to IHL’s administration of the SLEAP Program. We traced the
institutional requests for reimbursement of SLEAP grant awards through IHL’s accounting
system. We found that IHL’s controls over the SLEAP Program appeared to be functioning as
designed and should provide reasonable assurance over the proper use and accounting for the
hurricane relief funding at IHL if maintained and followed. A listing of the controls tested at
IHL is detailed in the objectives, scope, and methodology section of this report.

Institutional SLEAP Grant Awards In Accordance With SLEAP Policy

In order to determine institutional compliance with the IHL SLEAP Policy, we performed an
onsite review of 6 of the 37 institutions participating in the SLEAP Program. The 6 institutions
we tested were the University of Mississippi, the University of Southern Mississippi, Gulf Coast
Community College, Jones County Junior College, William Carey College, and Academy of
Hair Design. We found that the institutions tested had made sufficient effort to notify students of
the availability of the hurricane relief funding and were making awards to the students in
accordance with the SLEAP Policy.

At each institution, we tested 50 randomly selected SLEAP grant awards to determine whether
the institution had adequate controls over the SLEAP grants in conformance with IHL’s SLEAP
Policy guidance. We did not identify any SLEAP awards that were not supported by the student
files. No SLEAP grant awards exceeded the student’s unmet financial need (cost of attendance
less other financial aid and expected family contribution) although, in some instances, a
professional judgment determination increased the student’s cost of attendance.

Professional judgment determinations were in accordance with the IHL SLEAP Policy and
adequately documented the need of the student. The IHL SLEAP Policy allowed institutions to
adjust the cost of attendance or expected family contributions if the student had a major financial
need arising from the hurricanes. Professional judgments were most often used when a student
had major damage to their home resulting in displacement and when the student or their parent
lost employment. Of the 300 SLEAP awards reviewed at the six institutions, 37 were
professional judgment determinations.

Objectives, Scope, and Methodology

The audit objectives were to (1) assess IHL’s methodology for allocating hurricane relief funds
to schools, and evaluate the adequacy of information provided by schools to IHL; and (2)
identify and assess IHL’s controls over the accounting for the funds and compliance with laws
and regulations. Our work covered the period February 1, 2006, to July 19, 2006.
Final Management Information Report
Student Financial Aid No. 06-01                                                        Page 5 of 7

To evaluate the controls over the SLEAP Program, we interviewed IHL staff and reviewed
documents related to IHL’s administration of the SLEAP Program. From our audit fieldwork,
we identified and tested the controls over the following key processes in the IHL SLEAP
Program.

       ●   Institutional eligibility.
       ●   Institutional certification statements.
       ●   Institutional allocation amount.
       ●   File layout development for institutions to request funds.
       ●   Institutional reimbursement request submissions to IHL.
       ●   SLEAP grant awards inputted into the IHL accounting system.
       ●   Fund draws from the Department.
       ●   Funds disbursed to the Institutions.
       ●   Preparation of balancing report.
       ●   Preparation of summary reports submitted to the Department.

In addition to testing the controls at IHL, we performed audit fieldwork at 6 of the 37 institutions
participating in the SLEAP Program. The IHL allocation of the $95 million to the institutions
can be broken out by category of institution: proprietary, public, community college, or private
nonprofit. We initially judgmentally selected four institutions based on the institution with the
highest dollar allocation in each category. The institutions selected were –

       ●   University of Southern Mississippi.
       ●   Mississippi Gulf Coast Community College.
       ●   Academy of Hair Design.
       ●   William Carey College.

Two additional institutions were selected for review based on an analysis of SLEAP funds spent
as of May 12, 2006. We judgmentally selected the University of Mississippi and Jones County
Junior College because they had a large allocation of SLEAP funds and requested little in fund
reimbursements from IHL.

To test IHL controls at the institutional level, we randomly selected 50 student files at each
institution and tested those files for adherence to SLEAP Program requirements. Our sample for
each institution tested was pulled from the student roster reports submitted by each institution in
order to be reimbursed for its SLEAP grant awards. IHL provided each institution a software
program that required specific information be entered for each SLEAP grant award. This
information was summarized and submitted to IHL in a student roster report for reimbursement.

The primary information tested was in the data fields of the student roster report requests
submitted by each institution to be reimbursed by IHL for SLEAP grant awards. We performed
the following audit procedures to verify the information.
Final Management Information Report
Student Financial Aid No. 06-01                                                         Page 6 of 7

       ●	 Reviewed the student application for hurricane relief assistance.
       ●	 Reviewed financial aid award documentation and student summary reports to support
          other financial aid amounts. Other financial aid refers to all student financial aid
          received by the student which along with expected family contribution is subtracted
          from cost of attendance to determine the student’s unmet financial need. SLEAP
          grants cannot exceed the student’s unmet need.
       ●	 Identified cost of attendance in the student file.
       ●	 Identified the hurricane award amount and confirmed that it was paid in the student
          summary reports.
       ●	 Verified that the hurricane award did not exceed the unmet need (cost of attendance
           less other financial aid and expected family contribution).
       ●	 For professional judgment determinations, we verified that there was a SLEAP
           application.
       ●	 For professional judgment determinations, we evaluated the reasonableness of the
           adjustments to expected family contribution or cost of attendance.

In addition to testing information submitted to IHL for reimbursement of SLEAP grants awarded
to students, we interviewed financial aid staff at each institution regarding their efforts to notify
students of the availability of the SLEAP grant awards and their initial determination of
hurricane need used by IHL for allocation of the $95 million in hurricane relief funds. We also
asked the financial aid staff if they anticipated any difficulty in using their allocation of SLEAP
grant funds.

To meet the objectives of our audit, we relied, in part, on computer-processsed data that IHL
used to summarize and report SLEAP grant awards. As discussed above, we tested the controls
at IHL and the institutions to verify the accuracy of the information contained in the student
roster reports used by IHL to record expenditures in its accounting system and request
reimbursement from the Department for SLEAP grant awards. Based on our assessment and
tests to date, we concluded that the computer-processed data provided by IHL and the
institutions was sufficiently reliable for the purpose of our audit.

We conducted our audit fieldwork during the period February 2006 through July 2006. As part
of our audit, we visited (1) IHL’s offices in Jackson, MS; (2) Mississippi Gulf Coast Community
College in Perkinson, Gulfport, and Biloxi, MS; (3) University of Southern Mississippi in
Hattiesburg, MS; (4) William Carey College in Hattiesburg, MS; (5) University of Mississippi in
Oxford, MS; (6) Academy of Hair Design in Jackson, MS; (7) and Jones County Junior College,
in Ellisville, MS. We contacted IHL and institutional officials as necessary to obtain additional
information and clarifications during our audit work.

The audit was performed in accordance with generally accepted government auditing standards
appropriate to the scope of the review described above. At this time we are unable to fully meet
our audit objectives due to Mississippi Institutions of Higher Learning’s (IHL’s) ongoing efforts
to provide hurricane relief funding to students. In addition, recent changes in the law may divert
some of the hurricane relief funding to institutional support under Title VII, although the IHL
Final Management Information Report
Student Financial Aid No. 06-01                                                        Page 7 of 7

Director stated that IHL does not currently intend to redirect the hurricane relief funding from
the SLEAP Program.

Administrative Matters

We are closing this audit because no further audit work can be performed at this time. IHL has
until September 30, 2006, to obligate the hurricane relief funding, and material events may occur
in IHL’s administration of the hurricane relief funding that could impact our current assessment.
Subsequent to the expiration of the hurricane relief funding availability effective September 30,
2006, we anticipate beginning a separate audit to complete an assessment of IHL’s
administration of the $95 million in hurricane relief funding. The information provided in this
management information report is for informational purposes only. It is not to be considered a
completed assessment of IHL’s administration of the $95 million in hurricane relief funding
received by IHL.


cc:    	James Manning
       Acting Assistant Secretary for Postsecondary Education

       Thomas C. Meredith 

       Mississippi Institutions of Higher Learning