oversight

Mount Senario College's Administration of the Title IV, HEA Programs for the Period July 1, 1998, Through June 30, 1999.

Published by the Department of Education, Office of Inspector General on 2000-09-14.

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

    MOUNT SENARIO COLLEGE’S ADMINISTRATION
     OF THE TITLE IV, HEA PROGRAMS FOR THE
     PERIOD JULY 1, 1998, THROUGH JUNE 30, 1999



                                   FINAL AUDIT REPORT




                                Control Number ED-OIG/A05-90052
                                         September 2000




Our mission is to promote the efficient                   U.S. Department of Education
and effective use of taxpayer dollars                     Office of Inspector General
in support of American education                          Chicago, Illinois
                               NOTICE
Statements that management practices need improvement, as well as other
conclusions and recommendations in this report, represent the opinions of the
Office of Inspector General. Determination of corrective action to be taken
will be made by appropriate Department of Education officials.

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

TO:            Greg Woods
               Chief Operating Officer
               Student Financial Assistance



FROM:          Lorraine Lewis

SUBJECT:       FINAL AUDIT REPORT
               Mount Senario College’s Administration of the Title IV, HEA Programs for the Period
               July 1, 1998, Through June 30, 1999 ED-OIG/A05-90052


Attached is the subject report presenting our findings and recommendations resulting from our
audit of the Title IV, Higher Education Act Programs administered by Mount Senario College,
Ladysmith, Wisconsin.

In accordance with the Department’s Audit Resolution Directive, you have been designated as the
action official responsible for the resolution of the findings and recommendations in this report.

If you have any questions or wish to discuss the contents of this report, please contact Gerald
Michalski, Acting Regional Inspector General for Audit, at 312-886-6503.

Please refer to the above audit control number in all correspondence relating to this report.


Attachment
Dr. Norman L. Stewart, President
Mount Senario College
1500 College Avenue West
Ladysmith, Wisconsin 54848

Dear Dr. Stewart:

Enclosed is our final report (Control Number ED-OIG/A05-90052) entitled Mount Senario
College’s Administration of the Title IV, HEA Programs for the Period July 1, 1998, Through
June 30, 1999. If you have any comments or information that you believe may have a bearing on
the resolution of this audit, you should send them directly to the following Education Department
official, who will consider them before taking final Departmental action on the audit:

               Greg Woods, Chief Operating Officer
               Student Financial Assistance
               U.S. Department of Education
               Room 4004
               7th and D Streets, SW
               Washington, D.C. 20002

Office of Management and Budget Circular A-50 directs Federal agencies 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 greatly appreciated.

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

If you have any questions or wish to discuss the contents of this report, please contact Gerald
Michalski, Acting Regional Inspector General for Audit, at 312-886-6503. Please refer to the
above audit control number in all correspondence relating to this report.

                                                     Sincerely,



                                                     Lorraine Lewis


Enclosure
Table of Contents
      Mount Senario College’s Administration of the Title IV, HEA
      Programs for the Period July 1, 1998, through June 30, 1999
      Control Number ED-OIG/A05-90052


Executive Summary                                                           1

Background                                                                  3

Objective, Scope, and Methodology                                           3

Audit Results

      Finding 1-The College Failed to Meet the Financial Responsibility
                Standards                                                  4

      Finding 2-Credit Balances Not Paid to Students Timely                 6

      Finding 3-Perkins Federal Capital Contributions Not Used for Their
                Intended Purposes and Institutional Capital Contribution
                Not Made Timely                                            7

      Finding 4-Accounting System Was Inadequate                            8

      Finding 5-Policy for Selecting FSEOG Recipients Did Not Comply
                with the Regulations                                       10

Other Matters                                                              11

Statement on Management Controls                                           12
                                    EXECUTIVE SUMMARY
The purpose of our audit was to determine whether Mount Senario College (College)
administered the Title IV, Higher Education Act (HEA) programs according to applicable
regulations and the HEA during the year ended June 30, 1999. Based on the deficiencies
discussed in this report, the College did not administer the Title IV, HEA programs in
accordance with applicable regulations or the HEA.

The College failed to meet the financial responsibility standards when it received a going
concern opinion in its fiscal year 1999 Office of Management and Budget Circular A-133 (A-
133) audit report, did not make timely refunds, and did not meet all its financial obligations.
For two consecutive years, the College’s financial responsibility composite score was below
1.5. Based on cash flow problems and a projected loss of $480,000 for the year ending June
30, 2000, it is unlikely that the College will be able to improve its composite score to at least
1.5 and would fail financial responsibility based on the composite score for its fiscal year ended
June 30, 2000.

We noted the following problems in addition to the financial responsibility issues discussed
above:

•   The College was not in compliance with the requirement to return credit balances to
    students in a timely manner.
•   The College breached its fiduciary responsibility to the Secretary by using Federal Perkins
    Loan (Perkins) Federal Capital Contributions for other than their intended purpose.
•   The College failed to deposit its Perkins Institutional Capital Contributions in a timely
    manner.
•   The College did not have an accounting system that complied with the requirements in the
    regulations.
•   The College had a policy for selecting Federal Supplemental Educational Opportunity
    Grant (FSEOG) recipients that did not comply with the regulations.

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

•   post an irrevocable letter of credit equal to a minimum of one-half the Title IV, HEA funds
    received during its most recently completed fiscal year or place the school on provisional
    certification and require an irrevocable letter of credit equal to a minimum of ten percent of
    the Title IV, HEA funds received during its most recently completed fiscal year if the
    College can demonstrate that it is current in all its debt payments and has met all its
    financial obligations;1


1 In determining the amount of the letter of credit needed to protect the Department under the second alternative, the
Department should also take into account the refund letter of credit required by the College’s failure to pay refunds
on a timely basis.
                                                          1
•   pay outstanding refunds of $12,239;
•   return credit balances of $25,403 to students;
•   calculate and deposit lost interest into the Perkins Fund;
•   refund Federal Pell Grant (Pell) and FSEOG overpayments totaling $3,300 to the U.S.
    Department of Education (ED);
•   establish an accounting system that adequately accounts for Title IV, HEA funds; and
•   establish and implement policies, procedures, and controls to ensure that the deficiencies
    noted in this report do not recur.

We also recommend that the Chief Operating Officer for Student Financial Assistance place the
College on reimbursement.

The College did not submit any comments in response to our draft report.




                                               2
                                    BACKGROUND
The College is a private, non-profit, liberal arts college with a main campus in Ladysmith,
Wisconsin, and 28 off-campus locations. It was established in 1930 when Eau Claire State
Teachers College conducted extension courses for the Servants of Mary (Servite Sisters). In
1952, the College became a junior college affiliated with the College of St. Scholastica. Ten
years later, the Servants of Mary established the College as a four-year college. The College
became a non-sectarian institution in 1972, when a plan for the reorganization of the College
was adopted by the Board of Trustees, and approved by the Servants of Mary. The College
offers courses of instruction leading to both Associate and Baccalaureate degrees. It is
licensed by the Wisconsin Department of Public Instruction and accredited by the North
Central Association of Colleges and Schools.

During the period July 1, 1998, through June 30, 1999, the College participated in the Perkins,
Federal Work Study (FWS), FSEOG, Federal Family Education Loan (FFEL), and Pell
programs. The College’s Fiscal Operations Report and Application to Participate indicated
students received Title IV, HEA funds of $1,090,631, consisting of Perkins totaling $116,400,
FWS totaling $117,605, FSEOG totaling $103,393, and Pell totaling $753,233. According to
the College’s Fiscal Year 1999 A-133 audit report, the College received FFEL loans totaling
$2,544,320. Title IV of the HEA of 1965, as amended, authorizes these programs, and the
programs are also governed by regulations contained in 34 Code of Federal Regulations (CFR)
Parts 674, 675, 676, 682 and 690, respectively. In addition, these programs are subject to the
provisions contained in the Student Assistance General Provisions regulations (34 CFR 668),
and the institution must comply with the Institutional Eligibility regulations (34 CFR 600) to
participate in these programs. All regulatory citations in the report are to the codification
revised as of July 1, 1998.


              OBJECTIVE, SCOPE, AND METHODOLOGY
The purpose of our audit was to determine whether the College administered the Title IV,
HEA programs according to applicable regulations and the HEA during the year ended June
30, 1999. We evaluated (1) management controls and reliability of computer-processed data,
(2) institutional and program eligibility, (3) cash management and financial responsibility, and
(4) selected administrative and compliance requirements. Based on our work, we extended the
audit period to include a review of documents before and after the year ended June 30, 1999.

To meet our objective, we reviewed state and accrediting agency documents; completion
statistics; employee allegations; organizational charts; student budgets; College catalogs;
various accounting and administrative records; the 1996, 1997, 1998 and 1999 A-133 audit
reports; and working papers supporting the 1998 and 1999 A-133 audit reports. In addition,
we reviewed files for (1) all 116 students who had outstanding credit balances as of January 4,
2000; (2) 70 randomly selected students from a universe of 424 on-campus Title IV, HEA
recipients; (3) 50 randomly selected students from a universe of 141 off-campus Title IV, HEA
                                                 3
recipients; (4) all 27 students who had a zero grade point average for the Fall 1998 and Spring
1999 semesters and still received Title IV, HEA funds; (5) all 18 students the College
identified as having withdrawn during the 1998-99 award year; (6) 13 judgmentally selected
students who received FWS funds; and (7) 2 students judgmentally selected for interview. We
also interviewed various College officials, the College’s independent A-133 auditor, and ED
personnel.

We extensively relied on computer-processed data contained in the College’s computer based
accounting system. The results of our data tests showed the system could not provide all
requested data and contained conflicting data which casts doubt on the data’s validity.
However, when these data are reviewed in context with other available evidence, we believe
the opinions, conclusions, and recommendations in this report are valid.

We conducted our on-site field work at the College’s administrative offices in Ladysmith,
Wisconsin from August 9, 1999, through January 14, 2000. We also visited seven of the
College’s off-campus locations during the week of November 29 through December 3, 1999.
We performed our audit in accordance with government auditing standards appropriate to the
scope of audit described above.

                                   AUDIT RESULTS
The purpose of our audit was to determine whether the College administered the Title IV,
HEA programs according to applicable regulations and the HEA during the year ended June
30, 1999. Based on the deficiencies discussed in this report, the College did not administer the
Title IV, HEA programs in accordance with applicable regulations or the HEA.

FINDING 1-THE COLLEGE FAILED TO MEET THE FINANCIAL RESPONSIBILITY
STANDARDS

The College's independent auditor issued a going concern opinion. In the College’s fiscal
year 1999 A-133 audit report, the College’s independent auditor questioned the College’s
ability to continue as a going concern. The auditor based the opinion on several deficiencies
included in the report. The auditor also projected the College would lose $480,000 for the
fiscal year ending June 30, 2000. According to 34 CFR 668.171(d)(1), the Secretary does not
consider an institution to be financially responsible if, in its audited financial statements, the
auditor expressed doubt about the continued existence of the institution as a going concern.

Refunds not paid timely. The College’s A-133 audit reports disclosed that the College had a
problem paying refunds timely for several years. According to 34 CFR 668.22(h)(iv) and 34
CFR 682.607(c)(1), an institution must pay Perkins, FSEOG, and Pell refunds within 30 days
of specified refund dates and FFEL refunds within 60 days of specified refund dates. For the
years ended June 30, 1996, 1997, 1998, and 1999, the independent auditor reported that the
College did not pay refunds timely to lenders for 6 of 12 (50 percent), 7 of 21 (33.3 percent), 7
of 20 (35 percent), and 9 of 13 (69.2 percent) students, respectively, selected for refund
                                                4
testing. In addition, in the 1997 report, the auditor disclosed that the College did not pay
refunds to lenders for 2 of the 21 (9.5 percent) students selected for refund testing.

During our review of files for 122 students who received Title IV, HEA funds during the year
ended June 30, 1999, we found the College did not pay refunds timely for 13 of 14 (93
percent) students selected for refund testing. In addition, we identified 4 students for whom
the College did not pay refunds to lenders totaling $4,843. Although the students’ detailed
student statements indicated the College made the refunds on December 10, 1998, January 13,
1999, and June 21, 1999 (2 refunds), it could not provide us canceled checks. We also
identified 4 students for whom the College should have prepared refund calculations but did
not. After we informed the College, it made the refund calculations and determined 3 of the
students were owed refunds totaling $7,396. The College provided no evidence that it paid the
calculated refunds.

Failure to make timely refunds is a violation of 34 CFR 668.173. As a consequence of this
violation, the Secretary requires an institution to post an irrevocable letter of credit equal to 25
percent of the refunds it made or should have made in the most recently completed fiscal year.

The College has not been meeting its obligation to pay outstanding liabilities. According
to 34 CFR 668.171(a)(3), an institution must meet all its financial obligations. In the A-133
audit report for the fiscal year ended June 30, 1999, the independent auditor disclosed that the
College did not make timely payments of payroll taxes withheld from employees. The
College’s legal firm, in a letter to the independent audit firm, indicated the Internal Revenue
Service was seeking unpaid taxes of $19,843 and penalties and interest of $108,289 as of
October 20, 1999. According to the auditor, the College did not make the tax payments
because it needed the money to pay utilities, payroll, and other critical items deemed necessary
for the College to remain functional. The independent auditor also reported that the College
had not remitted four months of retirement contributions totaling $16,301 to the pension fund.
 These amounts include both deductions from the employees, as well as the College’s matching
contribution.

During our audit, we found that the College was not meeting other financial obligations. It had
not paid bills from its law firm ($21,388) or a local hotel ($456), and had not paid the current
installment on a long-term loan from a foundation ($15,000). In addition, the College waited
over a year to pay a vendor for a $2,708 computer to be used on a Federal grant project even
thought it drew down the Federal funds.

The College is in the zone alternative for financial responsibility. According to 34 CFR
668.171, an institution’s equity, primary reserve, and net income ratios must yield a composite
score of at least 1.5. For schools with a composite score below 1.5, the regulations provide an
alternative under which they can be considered financially responsible. Under 34 CFR
668.175, an institution with a composite score from 1.0 to 1.4 can continue to participate in
the Title IV, HEA programs as a financially responsible institution under the zone alternative
for three consecutive years. At the end of the third year, an institution’s composite score must

                                                 5
be at least 1.5. The College’s independent auditor reported composite scores of 1.1 and 1.0
for fiscal years 1998 and 1999, respectively. Based on the fiscal condition of the College and
the independent auditor’s projection of a loss of $480,000, it appears unlikely that the College
will be able to raise the composite score to 1.5 at the end of its fiscal year 2000. If the College
is unable to raise its composite score to at least 1.5, it will continue to fail to meet the financial
responsibility standards for participation in the Title IV, HEA programs.

Recommendations

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

1.1      post an irrevocable letter of credit equal to a minimum of one-half of the Title IV, HEA
         funds received during its most recently completed fiscal year or place the school on
         provisional certification and require an irrevocable letter of credit equal to a minimum
         of ten percent of the Title IV, HEA funds received during its most recently completed
         fiscal year if the College can demonstrate that it is current in all its debt payments and
         has met all its financial obligations;2
1.2      pay outstanding refunds of $12,239;
1.3      meet its financial obligations; and
1.4      establish policies, procedures, and controls to ensure it calculates refunds and pays
         them timely.

We also recommend that the Chief Operating Officer

1.5      place the College on reimbursement.

FINDING 2-CREDIT BALANCES NOT PAID TO STUDENTS TIMELY

The College did not pay credit balances to students timely. According to 34 CFR 668.164(e),
when the total amount of all Title IV, HEA program funds credited to a student’s account
exceeds the amount of tuition and fees, room and board, and other authorized charges, the
institution must pay the student or parent the resulting credit balance no later than 14 days
after the credit balance occurred or 14 days after the first day of class if the credit balance
occurred on or before the first day of class. The College provided us a January 4, 2000, credit
balance report listing 116 students who had outstanding credit balances. We reviewed the
report and found 90 (78 percent) students with credit balances totaling $25,403 that had been
outstanding from 15 to 202 days, with an average of 89 days. According to 34 CFR
668.165(b)(iii), if an institution gets written authorization, it can hold credit balances on behalf
of students instead of disbursing them to the students. We were told that the College did not
obtain written authorizations to hold the credit balances.

2 In determining the amount of the letter of credit needed to protect the Department under the second alternative, the
department should also take into account the refund letter of credit required by the College’s failure to pay refunds on
a timely basis.
                                                           6
Recommendations

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

2.1    pay credit balances of $25,403 to students; and
2.2    establish policies, procedures, and controls to ensure that it pays credit balances to
       students timely.

FINDING 3-PERKINS FEDERAL CAPITAL CONTRIBUTIONS NOT USED FOR THEIR
INTENDED PURPOSES AND INSTITUTIONAL CAPITAL CONTRIBUTION NOT MADE
TIMELY

The College drew down $44,767 of Perkins Federal Capital Contributions that it did not use to
make loans. According to 34 CFR 674.18(a), an institution shall deposit the funds it receives
under the Perkins program into the Perkins Fund. Instead, the College deposited the Perkins
funds into its Federal account, and then transferred the Perkins funds to various operating
accounts to pay operating expenses. According to 34 CFR 668.161(b), Title IV, HEA funds
are held in trust for the intended student beneficiaries; an institution may not use or
hypothecate Title IV, HEA funds for any other purpose. By using the funds for operating
expenses the College breached its fiduciary responsibility required by 34 CFR 668.82 (a) &
(b)(1) and 34 CFR 668.163(e). Later, it paid the money back by making three transfers
totaling $33,575 from operating accounts to the Perkins Fund and one transfer of $11,192
from an operating account to FSEOG (in essence, transferring this amount from Perkins to
FSEOG without going through the Perkins account). In effect, the College used Perkins funds
for short-term, interest free loans.

The College drew down the $44,767 of Perkins funds in December 1998 (two requests) and
March, May, and early June 1999 (one request each month), but did not deposit any
Institutional Capital Contribution at the time of the draw downs. Instead, it waited until June
30, 1999, and made one lump sum deposit. According to 34 CFR 674.19(c), an institution is
required to deposit its Institutional Capital Contribution into the Perkins Fund prior to or at the
same time it deposits any Federal Capital Contribution. The College’s Perkins fund would
have earned additional interest had the matching contribution been made timely.




                                                7
Recommendations

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

3.1    calculate and deposit lost interest into the Perkins Fund; and
3.2    establish policies, procedures, and controls to ensure that it uses funds for their
       intended purposes and deposits Institutional Capital Contribution timely.

FINDING 4-ACCOUNTING SYSTEM WAS INADEQUATE

The College’s accounting system was inadequate to properly account for Title IV, HEA funds.
 According to 34 CFR 668.24 (b)(2), an institution is required to establish and maintain, on a
current basis, financial records that reflect each Title IV, HEA program transaction, and
general ledger control accounts and related subsidiary accounts that identify each Title IV,
HEA program transaction and separate those transactions from all other institutional financial
activity. The College’s accounting system did not comply with the regulation because it did
not reflect each Title IV, HEA transaction and did not include general ledger control accounts
or related subsidiary accounts for Title IV, HEA funds. As a result, the system did not provide
the data needed to properly administer the Title IV, HEA programs and adequately account for
Federal funds. Specific accounting deficiencies we identified were:

1. The accounting system software, using a procedure called “balance roll forwards,”
   summarized a student’s financial transactions posted during a term into a single transaction
   year-end date. The College then purged the individual transactions from the system,
   thereby losing detailed accounting information. Before the “balance roll forwards”
   procedure took place, the College printed each student’s detailed statement. It was
   supposed to place the print-outs in the students’ files. However, during our file review, we
   found 4 of 122 files did not include the statements. In the 1999 audit report, the
   independent auditor reported the detailed statements for 2 of 26 students tested were
   missing.

2. The College could not document that it returned to the Federal account overpayments
   totaling $3,300 it made to three students. The accounting records showed that one student
   received three $1,500 Pell disbursements instead of two, one received two $1,500 Pell
   disbursements instead of one, and the third student received three $300 FSEOG
   disbursements instead of two. According to the College’s Chief Financial Officer, the
   accounting records were incorrect. He said that the extra disbursements had been
   returned, but the accounting records did not reflect the return because of incorrect coding.

3. The College could not provide us detailed Perkins, FSEOG, and Pell disbursement
    information for June 1999. The independent auditor reported that loan detail information
    for June 1999 was unavailable. According to the College’s Chief Financial Officer, the
    information was not available because of problems with the accounting system software.
                                                8
4. Based on our review of 122 student files, we found instances where data in various
   accounting records did not always agree, were not always accurate, and were not always
   supported. For example, we found three instances where disbursements recorded on
   detailed student statements and included in monthly disbursement and refund reconciliation
   statements did not agree with disbursements included on the student award master list. In
   addition, we found four instances where outstanding balances on students’ detailed student
   statements were not correct based on the detailed transactions included on the statements.
   Although detailed student statements showed the College made required refunds, we found
   four instances where the College could not provide supporting documents, such as
   canceled checks, to verify it actually made the refunds.

5. The College operated its own work study program in addition to the FWS program. It
   used a single payroll account to pay Federal and institutional work-study recipients. The
   underlying records did not specify which program the students were working in. As a
   result, the accounting system did not provide a clear audit trail of FWS recipients and how
   much they received.

6. Within specified parameters, the regulations allow institutions to transfer funds between
   Title IV, HEA programs. We were told the College transferred funds from Perkins to
   FSEOG, which is an allowable use of Perkins funds. However, the accounting records did
   not provide an audit trail so we could verify the assertion.

7. In the 1999 A-133 audit report, the independent auditor disclosed that the general ledger
   computer system had several shortcomings. It could not generate financial statements, a
   working trial balance, or accounts payable information for a given date once the date had
   passed. Accounts payable testing for the fiscal year actually was based on data for the day
   the auditor selected the sample, not the last day of the year.

Recommendations

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

4.1    establish an accounting system that adequately accounts for Title IV, HEA funds; and
4.2    return $3,000 of Pell and $300 of FSEOG to ED.




                                              9
FINDING 5-POLICY FOR SELECTING FSEOG RECIPIENTS DID NOT COMPLY WITH
THE REGULATIONS

The College's policy for determining FSEOG awards did not comply with the regulations.
According to 34 CFR 676.10(a)(1), when an institution is selecting among eligible students for
FSEOG awards, the institution must select those students with the lowest expected family
contribution who will also receive Pell. The College did not follow this guidance. Its policy at
the time of our audit excluded an entire category of students, the off-campus students, from
being considered for FSEOG awards. Our file review verified this exclusion. We found that
none of 50 randomly selected off-campus students received FSEOG awards. This number
included 8 Pell recipients who had zero expected family contributions, 6 of whom had unmet
need after all aid was awarded.

The College's policy was further flawed regarding the categories of on-campus students to be
considered for FSEOG awards. The policy established three categories of on-campus
students: (1) dependent student with an expected family contribution less than 1,000, (2) single
independent student with an expected family contribution less than 1,300, and (3) married
independent student or single independent student with a child with an expected family
contribution less than 200. As written, this policy excludes married independent students or
single independent students with child(ren) who have lower expected family contributions than
dependent students who receive consideration for FSEOG. Schools are allowed to create
categories for awarding FSEOG, and, in certain circumstances, a student with a higher
expected family contribution may receive FSEOG while a student with a lower expected family
contribution may not. However, the regulations do not allow a school to create a category
that will always exclude certain groups of students from being considered for FSEOG.

Our file review of on-campus students disclosed that the end result of the College's selection
process did not always meet the requirements of the regulations. We found that 5 Pell
recipients out of 70 randomly selected on-campus students did not receive FSEOG even
though each one had a zero expected family contribution and unmet need after all aid was
awarded. At the same time, 9 students with expected family contributions greater than zero
received FSEOG funds.

According to the College’s Financial Aid Director, the College gave priority for FSEOG
awards to on-campus students because they pay higher tuition per credit hour, and the typical
off-campus student works full-time and attends school part-time. According to its response to
our finding point sheet, the College’s policy now has six categories, three for on-campus
students and three for off-campus students. However, the College did not provide a copy of
this policy and did not provide documentation to support that it had started making FSEOG
awards to off-campus students.




                                               10
Recommendation

We recommend that the Chief Operating Officer for Student Financial Assistance require that
the College:

5.1    establish and implement policies, procedures, and controls to ensure that it awards
       FSEOG in a manner that complies with the regulations.

                                 OTHER MATTERS
STUDENTS WORKED FWS JOBS DURING SCHEDULED CLASS HOURS

FWS time sheets sometimes showed students worked during scheduled class hours. We
judgmentally selected for review 13 students who received FWS funds for the year ended June
30, 1999, and found that 11, or 85 percent, submitted time sheets that reported they worked
during scheduled class hours.

According to 34 CFR 675.1(a), FWS funds are intended to help students meet the cost of
attending postsecondary education. However, it appears that students may be cutting class to
earn these funds. Cutting class to work appears to be contrary to the purpose of the FWS
program.

The College’s Work-Study Handbook included a statement that students may not work during
scheduled class time. However, the College did not ensure that the control was followed. In
response to our finding point sheet, the College stated the supervisor is responsible for
checking the time cards to be sure students are not working during class time.

The College should establish and implement controls to ensure that supervisors review time
cards to ensure students do not work during scheduled classes.

LOAN COUNSELING NOT ALWAYS DOCUMENTED

Contrary to the regulations, the College could not always document that it performed initial
entrance and exit counseling for FFEL recipients. According to 34 CFR 682.604(f)&(g), a
school shall conduct initial counseling with each borrower prior to releasing the first
disbursement unless the borrower has received a prior loan, and shall conduct exit counseling
with each borrower shortly before the borrower ceases at least half-time study at the school. If
a borrower withdraws without the school’s prior knowledge, or fails to attend an exit
counseling session as scheduled, the school shall mail written counseling material to the
borrower. We reviewed files for 100 FFEL recipients and found 3 did not document initial
entrance counseling and 13 did not document exit counseling.

We believe the College’s failure to document some initial and exit counseling occurred because
it does not have written policies and procedures for loan counseling. In response to a finding
                                               11
point sheet, a College official stated the College does not certify new loans until initial
counseling documentation is in the student file, and they send an information packet via
certified mail to students who do not attend an exit counseling session. However, the response
did not include documentation to support that the College has established this policy.

The College should establish and implement written policies and procedures for documenting
loan counseling.

               STATEMENT ON MANAGEMENT CONTROLS
As part of our audit, we made an assessment of the College’s management control structure,
policies, procedures, and practices applicable to the Title IV, HEA programs. The purpose of
our assessment was to assess the level of control risk, that is, the risk that material errors,
irregularities, or illegal acts may occur.

Because of inherent limitations, a study and evaluation made for the limited purpose described
above would not necessarily disclose all material weaknesses in the control structure.
However, we identified several material weaknesses that adversely affected the College’s
ability to administer the Title IV, HEA programs. These material weaknesses are discussed in
the AUDIT RESULTS section of this report.




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                                  Distribution List
                           Control Number OIG/A05-90052
                                                                              Copies
Auditee                                                                           1

Action Official                                                                   1

       Greg Woods, Chief Operating Officer
       Student Financial Assistance

Other ED Offices

       General Manager for Schools, Student Financial Assistance                  1

       Chief Financial Officer, Student Financial Assistance                      1

       Director, Case Management & Oversight, Schools, Student
       Financial Assistance                                                       1

       Area Case Director, Chicago Case Team, Case Management &
       Oversight, Schools, Student Financial Assistance                           1

       General Counsel, Office of the General Counsel                             1

       Office of Public Affairs                                                   1

       Secretary’s Regional Representative, Region V                              1

OIG

       Inspector General                                                          1
       Deputy Inspector General                                                   1
       Assistant Inspector General for Investigation                              1
       Assistant Inspector General for Audit (A)                                  1
       Deputy Assistant Inspector General for Audit (A)                           1
       Director, Student Financial Assistance, Advisory and Assistance Team       1
       Regional Audit Offices                                                     6




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