Finding N o.1. Institutions Participating in the Title IV Program s M ustN otProvide Paym ents Based on Success in Securing Enrollm ents to A ny Person or Entity Engaged in R ecruiting Sections 487(a)and 487(a)(20)ofthe H EA require that: In orderto be an eligible institution forthe purposes ofany program authorized underthis title,an institution ...shall...enterinto a program participation agreem entw ith the Secretary. The agreem entshallcondition the initialand continuing eligibility ofan institution to participate in a program upon com pliance w ith the follow ing requirem ents: ...The institution w illnotprovide any com m ission,bonus,orotherincentive paym entbased directly orindirectly on success in securing enrollm ents orfinancial aid to any persons orentities engaged in any studentrecruiting oradm ission activities orin m aking decisions regarding the aw ard ofstudentfinancialassistance . ... The regulations at34 CFR § 668.14(b)(22)codify the statutory prohibition on incentive paym ents based on success in securing enrollm ent. By entering into this program participation agreem ent,an institution agrees that... [i]tw illnotprovide,norcontractw ith any entity thatprovides,any com m ission, bonus,orotherincentive paym entbased directly orindirectly on success in securing enrollm ents orfinancialaid to any persons orentities engaged in any student recruiting oradm ission activities orin m aking decisions regarding the aw arding of studentfinancialassistance. IPD R ecruited Students and R eceived Paym ents Based on StudentEnrollm entin the A PS Program s W esleyan entered into a contractw ith IPD thatprovided forincentive paym ents to IPD based on success in securing studentenrollm ents forits A PS program s. The contractstated that“IPD is a recruiting service organization assisting Indiana W esleyan U niversity in recruiting students forthe program s.” The contractincluded the follow ing specific responsibilities forIPD : • IPD shallrecruitstudents to enrollin the courses ofstudy in the A PS program s. • IPD shallprovide representatives to recruitstudents forthe program s covered underthe agreem ent. • IPD shallcollect,on behalfofW esleyan,alltuition,application fees,book and m aterial fees,and otherfees applicable to the program s. • IPD shallm aintain the officialprogram accounting books and records. 2 IPD rem itted book,m aterial,and com puterfees in fullto W esleyan. Tuition fees w ere divided betw een the parties on a w eekly basis. D uring the period ofouraudit,in accordance w ith the contract,the division w as 75 percentto W esleyan and 25 percentto IPD . Refunds w ere paid according to these percentages. In contracting w ith IPD to provide recruiting services,W esleyan violated the statutory and regulatory provisions quoted above by paying IPD a percentage oftuition foreach enrolled studentIPD recruited. W esleyan V iolated the H EA by Paying IPD Based on Success in Securing Enrollm ents for the A PS Program s W hich R esulted in $31,682,782 ofIm properly D isbursed Title IV Funds Because W esleyan did notcom ply w ith the H EA and regulations by paying incentives to IPD based on success in securing enrollm ents forits A PS program s,W esleyan m ustreturn allTitle IV funds thatw ere disbursed on behalfofstudents enrolled in the A PS program s w ho w ere im properly recruited. Because W esleyan paid incentives foreach studentenrolled in the A PS program s,allstudents in the A PS program s w ere im properly recruited. O ur auditcovered the period July 1,1997,through June 30,2000. Forthatperiod,Title IV funds totaling $31,682,782 w ere disbursed on behalfofstudents enrolled in the A PS program s, consisting of$3,268 in FederalSupplem entalEducationalO pportunity G rants (FSEO G ), $1,656,963 in PellG rant(Pell),and $30,022,551 in FederalFam ily Education Loan (FFEL) funds. IPD R ecruiters R eceived Salary and Bonuses Based on the N um ber ofStudents Enrolled in the A PS Program s O urreview ofIPD ’s com pensation plans forfiscalyears (FY )1997-1999 disclosed thatIPD provided incentives to its recruiters through salary levels thatw ere based on the num berof students recruited and enrolled in the program s. A ccording to the plan,IPD assigned recruiters a salary w ithin the param eters ofperform ance guidelines (i.e.,know ledge ofbasic policies and procedures,organization and com m unication skills,and w orking relationships). IPD assessed recruiterperform ance on a regularbasis,com paring itto the established goals forthe fiscalyear.The plan stated thatIPD w ould com plete form alevaluations biannually and,afterthe first6 m onths ofem ploym ent,determ ine salary on an annualbasis. The plan show ed thatrecruiter’s success in enrolling students determ ined w hetherIPD adjusted the salary upw ard,dow nw ard,orkeptitthe sam e. In addition,the FY 1998 and 1999 com pensation plans called forthe paym entofbonuses to recruiters hired before Septem ber 1,1998. The bonuses increased as the num berofstudents increased,and ranged from $1,344 for100-149 students to $29,600 forover200 students. The FY 1999 plan indicated thatrecruiters hired on orafterSeptem ber1,1998,w ho achieved 100 orm ore starts by the end ofthe fiscalyearw ere entitled to a one-tim e bonus of$1,500. In contracting w ith IPD , W esleyan w as notin com pliance w ith 34 CFR § 668.14(b)(22)because IPD paid its recruiters incentive com pensation based on success in securing enrollm ents. 3 R ecom m endations W e recom m end thatthe ChiefO perating O fficerforStudentFinancialA ssistance (SFA )require W esleyan to: 1.1. A m end and/orterm inate im m ediately its presentcontractualrelationship w ith IPD to elim inate incentive paym ents based on success in securing enrollm ents. 1.2. Return to lenders $30,022,551 ofFFEL disbursed on behalfofstudents enrolled in the A PS program s during the period July 1,1997,through June 30,2000,and repay the D epartm ent forinterestand specialallow ance costs incurred on Federally subsidized loans. 1.3. Return to the D epartm ent$3,268 ofFSEO G and $1,656,963 ofPelldisbursed to students enrolled in the A PS program s during the period July 1,1997,through June 30,2000. 1.4 . D eterm ine the am ountofFSEO G ,Pell,and FFEL funds im properly disbursed to oron behalfofstudents since the end ofourauditperiod and return the funds to the D epartm ent and lenders. U niversity C om m ents and O IG R esponse The U niversity did notagree w ith ourconclusions and recom m endations. The follow ing is a sum m ary ofthe U niversity’s com m ents and ourresponse to the com m ents. The fulltextofthe U niversity’s com m ents is enclosed. U niversity Com m ents. The A llocation ofR evenue U nder the IPD C ontractD oes N otV iolate the Incentive C om pensation R ule. The U niversity stated that: • The IPD contractcom pensates IPD based on the volum e ofa broad range ofprofessional services provided to Indiana W esleyan U niversity,m any ofw hich have variable costs dependent on the num berofstudents enrolled in the A PS program s. • The Incentive Com pensation Rule does notapply to the IPD contractbecause (1)the D epartm entis w ithoutlegalauthority to use the rule as a basis forregulating routine contracts forprofessional,non-enrollm entrelated services;and (2)the rule cannotapply to service contracts w here the costofproviding services necessarily varies depending on the num berof students. • The D epartm enthas published no regulation orotherpublic guidance supporting the interpretation ofrevenue-sharing arrangem ents advanced by the O IG in the draftauditreport. The IPD C ontractC om pensates IPD Based on the V olum e ofa Broad R ange ofProfessional Services Provided to Indiana W esleyan U niversity. The U niversity stated thatthe contract com m its IPD to provide the follow ing listofservices,w hich itperform ed,w ith respectto the operation ofthe A PS program s. • M anagem entconsultation and training,upon request,regarding: • Program adm inistration and evaluation. • A ssessm entcenterorganization and m anagem ent. 4 • Studenttracking system s developm entand im plem entation. • M arketing research and m anagem ent. • Studenttuition and financialaid accounting. • N eeds analyses. • Com pliance w ith law s and regulations pertaining to adulteducation. • Resources available foruse in adultprogram s. • D iscountpurchasing agreem ents. • D evelopm entofresource distribution system s. • O rientation ofnew adm inistrative personnelto the A PS program s’form at. • M aintenance ofan exchange forum forinstitutions w ith sim ilarprogram s. • A cadem ic system design and developm entconsulting,including: • D evelopm entofsystem s forPriorLearning A ssessed Creditevaluation and aw ard. • System s forarticulation agreem ents w ith tw o-yearcollege program s and business training system s. • A cadem ic program design issues. • Regionalaccreditation com pliance issues and m easures. • Faculty recruitm ent,loading,and evaluation issues related to the A PS program s. • Com prehensive academ ic quality controlin adultprogram s. • A ssistance w ith actualinstructorevaluations in key courses. • A nalyses ofproposed program s ofstudy. • M aintenance ofaccounting records,and financialplanning and budgeting. The U niversity stated thatthe O IG im plied thatIPD only provided recruiting and tuition collection services and the O IG eitheroverlooked orignored otherservices provided by IPD underthe agreem entw ith the U niversity. O IG Response. The O IG did notoverlook orignore the factthatIPD provided otherservices to the U niversity underthe term s ofthe agreem ent. In the draftauditreport,w e acknow ledged thatIPD provided additionalservices,such as accounting. Because itw as notw ithin the scope ofouraudit, w e did notdeterm ine the extentofadditionalservices underthe agreem entthatIPD actually provided atthe requestofthe U niversity and atIPD ’s cost. W e did verify thatthe revenue to IPD w as generated only by the success in securing enrollm ents forw hich IPD w as perform ing recruiting services. This constitutes a statutory violation ofproviding a com m ission,bonus,orotherincentive paym entbased directly orindirectly on the success in securing enrollm ents. W hile w e recognize thatIPD logically had to incurexpenses to provide the program accounting services and any additionalservices thatitm ay have provided,these expenses are irrelevantin determ ining w hetherthe structure ofthe revenue allocation is a violation ofthe H EA . N o com pensation w as to be provided to IPD unless IPD w as successfulin recruiting and securing studentenrollm ents. The agreem entalso included a m inim um enrollm entguarantee that,ifnot achieved,w ould resultin a reduction in revenue to be allocated to IPD ,despite otherservices that m ighthave been provided. This furtherem phasizes thatthe revenue stream is com pletely generated by,and dependenton,studentenrollm ent. 5 The U niversity does notdispute thatthe paym ents itm ade to IPD w ere based on a percentage ofthe tuition and fees paid by students enrolled in the A PS. Likew ise,the U niversity does notdispute that IPD w as responsible forrecruiting students. N ordoes the U niversity dispute thatsom e portion of the am ountitpaid to IPD w as directly related to IPD ’s success in securing enrollm ents forthe U niversity’s A PS. O urauditreportdid notfocus on w hatotherservices m ay have been provided by IPD because once IPD becam e responsible forrecruiting students,even am ong otheractivities, and received com pensation from the U niversity based on the num berofstudents enrolled in the program ,the U niversity w as in violation ofthe H EA . The H EA at§ 487(a)(20)states: The Institution w illnotprovide any com m ission,bonus,orotherincentive paym ent based directly orindirectly on success in securing enrollm ents orfinancialaid to any persons or entities engaged in any studentrecruiting ... [Em phasis added.] O nce recruiting w as added to the services to be provided underthe contract,com pensation based on enrollm entw as no longerperm itted. IPD had sole responsibility forrecruitm entand enrollm ent, and w as paid underthe contractonly on the basis ofits success in securing studentenrollm ent regardless ofw hatotherservices itm ay have been providing. W hetherornotthe revenue allocation w as intended to provide com pensation forotherservices is irrelevantbecause the allocation violates the law . The U niversity’s response regarding the services perform ed by IPD does notalw ays agree w ith the contract. W here the U niversity puts forw ard thatIPD w as responsible forprogram adm inistration and evaluation,the contractactually provided that“[the U niversity]retains fulland ultim ate responsibility to third parties forthe educationalcontent,instruction,and presentation ofthe courses ofstudy offered in the program s.” Section III.D .ofthe contractstated thatIPD shallprovide,at IPD ’s expense,reasonable consulting services to train U niversity personnelin program adm inistration and evaluation. The U niversity,in its response,stated thatIPD is responsible forstudentservices and academ ic services procedures. A s explained below ,these services w ere to be provided atthe U niversity’s requestand IPD ’s expense,orunderseparate agreem ent. The U niversity stated thatIPD w as involved w ith curriculum developm ent. The contractatSection III.E.,Curriculum D elivery System actually stated that“IPD m ay advise Indiana W esleyan U niversity in the preparation offulldescriptions ofcurricula ....” The contractstated thatall faculty and studentcurriculum m aterials developed orrevised w ith funding provided solely by the U niversity shallrem ain the sole property ofthe U niversity,butIPD m ay purchase the m aterials w ith the consentofthe U niversity. A ny curriculum m aterials provided exclusively through funding from IPD shallrem ain the property ofIPD butshallbe available to the U niversity. The U niversity shallbe responsible forthe acquisition,printing,and distribution ofallcurricula and textbooks. 6 The U niversity’s response asserted thatIPD w as responsible forfaculty recruitm entand assessm ent. The contractactually stated that“Indiana W esleyan U niversity shallexercise totalauthority forthe services ofinstructionalpersonnelforthe program s including allcosts as determ ined and approved." A s provided forin the contract,Section III.G .,IPD m ay offersuggested class sites;how ever,the U niversity w as to determ ine actualsites,and shallprocure and be responsible forthese sites. W e had previously reported thatIPD m aintained the officialaccounting records ofthe program . In its response,the U niversity stated thatIPD is also responsible forfinancialplanning and budgeting. W e find no reference to these duties in the contract. The contractdid require IPD to provide allprogram prom otion and advertising. Successfulprogram prom otions,advertising and m arketresearch by IPD w ould have the effectofincreasing its success in securing enrollm ents forw hich itw as com pensated. W e had previously included this in the background section ofourreport. The U niversity stated thatm any ofthe services offered by IPD w ere highly volum e sensitive. W e could only identify three item s from the contractthatappearto be volum e sensitive:recruiting, m arketing,and m aintenance ofaccounting records. The array ofconsulting services w ould not necessarily be volum e sensitive. U niversity Com m ents. The Incentive C om pensation R ule D oes N otA pply to the IPD C ontract Because (a)the D epartm entH as N o LegalA uthority For U sing the Incentive C om pensation R ule as a Basis for R egulating R outine C ontracts for Professional,N on-Enrollm entR elated Services;and (b)the Incentive C om pensation R ule C annotA pply to Service C ontracts W here the C ostofProviding Services N ecessarily V aries D epending on the N um ber ofStudents. The U niversity stated thatthe Incentive Com pensation Rule w as intended to preventschools from using com m issioned salespersons to recruitstudents,notto regulate business arrangem ents. W hen Congress enacted the statute,and the D epartm entprom ulgated the im plem enting regulation,both em phasized theirintention to haltthe use ofcom m issioned salespersons as recruiters. O IG Response. The H EA does notexcuse orperm itincentive paym ents depending on the type of contractualarrangem entthatcreates them . A ny incentive paym entbased directly orindirectly on success in securing enrollm entis prohibited. The contractw ith IPD included recruiting activities w ith com pensation determ ined by IPD ’s success in securing students forenrollm enton a per studentbasis. U niversity Com m ents. The D epartm entH as Published N o R egulations or O ther Public G uidance Supporting the O IG ’s Interpretation ofthe Incentive C om pensation R ule to R estrictR outine R evenue Sharing A rrangem ents.The U niversity stated thatthe draftreportcites no regulatory guidance,case law ,norotherpublished guidance to supportthe proposition thatthe revenue allocation form ula violates the Incentive Com pensation Rule. The U niversity did not know ,and could nothave know n,thatthe revenue allocation form ula w ould be construed as a violation ofthe Incentive Com pensation Rule,because no such pronouncem entorinterpretation had everbeen published and dissem inated to Title IV participating institutions. The U niversity stated 7 thatrevenue received by IPD did notm eetthe definition ofcom m issions orbonuses,and w as not paid to any individualagentorem ployee. O IG Response. The H EA prohibition,§ 487(a)(20),on incentive paym ents is clear. The Institution w illnotprovide any com m ission,bonus,orotherincentive paym ent based directly orindirectly on success in securing enrollm ents orfinancialaid to any persons or entitiesengaged in any studentrecruiting....[Em phasis added.] The U niversity signed a program participation agreem entcom m itting itto com ply w ith the H EA and regulations. The contractclearly indicated thatIPD w as to be an entity engaged in student recruiting on behalfofthe U niversity. The contractalso clearly show ed thatcom pensation to IPD w as a percentage ofthe tuition revenue based on IPD ’s success in securing studentenrollm ents for the U niversity. U niversity Com m ents. The O IG ’s R ecom m ended Sanction – D isallow ance ofA llTitle IV Funds R eceived by the U niversity for A llEnrollees – Is U nw arranted and InconsistentW ith A pplicable Law and R egulations. The U niversity stated thatno basis exists to supportthata violation ofany ofthe innum erable program participation agreem entrequirem ents w arrants a w holesale disallow ance ofallTitle IV funds. O IG Response. The U niversity incorrectly characterized ourrecom m endation form onetary recovery as a sanction. W e are notproposing thatthe U niversity be fined. W e are recom m ending thatthe D epartm entrecoverfunds disbursed in violation ofthe H EA . U niversity Com m ents. IPD ’s R ecruiter Salaries D o N otV iolate the Incentive C om pensation R ule Because (1)the Incentive C om pensation R ule D oes N otProhibitSalary Based on Success in Securing Enrollm ents;(2)the Legislative H istory ofthe Incentive C om pensation R ule M akes C lear ThatC ongress Intended to Perm itR ecruiter Salaries to be Based on M erit;and (3)the Secretary has N otPublished A ny Interpretation ofthe Incentive C om pensation R ule ThatW ould ProhibitR ecruiter Salaries Based on M erit. IPD stated thatits com pensation plans based recruitersalaries on factors orqualities thatare notsolely related to success in securing enrollm ents. Italso stated thatthe prohibition in § 487(a)(20)did notextend to salaries. Even if salaries w ere included,IPD stated thatsalaries could be based on m eritorsuccess in securing enrollm entas long as enrollm entw as notthe sole factor. O IG ’s Response. Contrary to IPD ’s representation,the com pensation plan w e review ed did not include factors otherthan enrollm entto adjustrecruitersalaries. A ccording to the com pensation plan,recruiters’salary and bonuses w ere determ ined annually by how m any students they enrolled in the program s. A nnualsalary and bonuses w ould increase,decrease,orrem ain the sam e in accordance w ith predeterm ined tables thatdirectly tied students enrolled to particularsalary and bonus am ounts. The salary and bonus tables did notinclude factors otherthan enrollm ent. The requirem ents of§ 487(a)(20)cannotbe avoided by labeling im properincentive com pensation as salary. 8 Finding N o.2. N onterm Institutions M ustProvide a M inim um of360 H ours of InstructionalTim e in an A cadem ic Y ear Section 481(a)(2)ofthe H EA states thatthe term academ ic yearshall: [R]equire a m inim um of30 w eeks ofinstructionaltim e,and,w ith respectto an undergraduate course ofstudy,shallrequire thatduring such m inim um period of instructionaltim e a full-tim e studentis expected to com plete atleast24 sem esteror trim esterhours or36 quarterhours atan institution thatm easures program length in credithours .... The regulations at34 CFR § 668.2(b)clarify w hatconstitutes a w eek ofinstructionaltim e: [T]he Secretary considers a w eek ofinstructionaltim e to be any w eek in w hich atleast one day ofregularly scheduled instruction,exam inations,orpreparation for exam inations occurs ... Foran educationalprogram using credithours butnotusing a sem ester,trim ester,orquartersystem ,the Secretary considers a w eek ofinstructional tim e to be any w eek in w hich atleast12 hours ofregularly scheduled instruction, exam inations,orpreparation forexam inations occurs .... These regulations,com m only know n as the 12-H ourRule,require the equivalentof360 instructionalhours peracadem ic year(12 hours perw eek for30 w eeks). Institutions w ere required to com ply w ith the 12-H ourRule as ofJuly 1,1995. In the pream ble to the 12-H ourRule regulations published on N ovem ber29,1994,the Secretary explained thatan institution w ith a program thatm eets less frequently than 12 hours perw eek w ould have to m eetfora sufficientnum berofw eeks to resultin the required instructionalhours. Forexam ple,ifan institution decided to establish an academ ic yearfora program w ith classes that m etfor10 hours perw eek,the classes w ould need to be held for36 w eeks to resultin 360 hours. W esleyan m easured its A PS educationalprogram s in credithours,using a non-traditionalacadem ic calendar. The A PS program s consisted ofa series ofcourses forw hich a studentgenerally received 3 credithours percourse. W esleyan defined its academ ic yearas 24 credithours in 45 w eeks. To com ply w ith the 12-H ourRule,W esleyan w ould need to provide 8 hours ofinstruction perw eek for each w eek in its 45-w eek academ ic yearto equal360 hours peryear. W esleyan D id N otM aintain D ocum entation to Show ThatStudy G roup M eetings W ere Scheduled and O ccurred M anagem entcontrols are the policies and procedures adopted and im plem ented by an organization to ensure thatitm eets its goals w hich,as applicable to this situation,are com pliance w ith law s and regulations. A ccording to the A PS studenthandbook and W esleyan officials,students w ere required to m eetin class forfourhours perw eek,and w ere expected to m eetan additionalfour hours perw eek in study groups. W esleyan counted the study group tim e forpurposes ofthe 12- H ourRule. W e found thatW esleyan did notestablish and im plem entm anagem entcontrols to ensure thatthe study groups w ere regularly scheduled and occurred. 9 W esleyan’s policy w as thatan instructorbe presentatregularclass,butitdid nothave a policy regarding scheduling and tracking study group m eetings. In addition,itdid notrequire instructors to be presentatstudy group m eetings. O urreview ofW esleyan’s w ritten policies and procedures, and the lack ofstudy group records show ed thatW esleyan had no assurance thatstudy groups w ere taking place to m eetthe requirem ents ofthe 12-H ourRule. W esleyan officials inform ed us that beginning in Sum m er2000,W esleyan established the policy thatfaculty shallm onitorstudy group attendance and turn in attendance form s to the adm inistrative office on a w eekly basis. The adm inistrative centerinputs the attendance into a database,w hich is updated w eekly. Failing to C om ply W ith the 12-H our R ule R esulted in W esleyan O veraw arding $5,642,000 of Title IV Funds to Its A PS Students Because W esleyan did notensure thatstudy group m eetings w ere scheduled and occurred as required,once a w eek for4 hours,the m eetings do notqualify forinclusion in the 12-H ourRule calculation. Consequently,W esleyan’s defined academ ic yearof45 w eeks only provided 180 hours ofthe required m inim um of360 hours ofinstructionaltim e (4 hours ofinstruction perw eek for45 w eeks equals 180 hours ofclassroom hours). In orderto m eetthe 360-hourrequirem ent, W esleyan’s academ ic yearw ould need to be 90 w eeks in length. By using an academ ic yearof45 w eeks ratherthan 90 w eeks foraw arding Title IV funds,W esleyan disbursed am ounts to students thatexceeded the m axim um am ounts foran academ ic yearallow ed underthe FFEL and Pell program s. W e estim ated thatW esleyan overaw arded $5,642,000 ofTitle IV funds to A PS students. The students included in this am ounthad FFEL and Pellw ith loan/grantperiods from July 1,1997, through June 30,2000. • FFEL Lim its. Title 34 CFR § 682.603(d)stipulates thatan institution m ay notcertify a loan application thatw ould resultin a borrow erexceeding the m axim um annualloan am ounts specified in 34 CFR § 682.204. W e estim ated that$4,814,000 in FFEL disbursem ents exceeded the annualloan lim its. • PellM axim um . Title 34 CFR § 690.62(a)specifies thatthe am ountofa student’s Pellfor an academ ic yearis based upon schedules published by the Secretary foreach aw ard year. The paym entschedule lists the m axim um am ounta studentcould receive during a full academ ic year. W e estim ated that$828,000 in Pelldisbursem ents exceeded the m axim um am ountallow ed. Institutions w ere required to com ply w ith the 12-H ourRule as ofJuly 1,1995. Because W esleyan’s academ ic yearforits A PS program s did notm eetthe requirem ents ofthe 12-H ourRule,W esleyan im properly disbursed FFEL and Pellaw arded during the auditperiod. R ecom m endation W e recom m end thatthe ChiefO perating O fficerforSFA require W esleyan to: 2.1. Im m ediately develop an academ ic yearforits undergraduate A PS program s thatsatisfies the 12-H ourRule as a condition forcontinued participation in the Title IV program s. 10 The dollars w e estim ated as overaw arded due to violating the statutory course length requirem ents are duplicative ofthe dollars w e determ ined as overaw arded due to violating the statutory prohibition againstthe use ofincentive paym ents forrecruiting activities. O nly those am ounts not recovered in Finding N o.1 should be recovered by SFA as a resultofFinding N o.2. U niversity C om m ents and O IG R esponse The U niversity did notagree w ith ourconclusions and recom m endations. The follow ing is a sum m ary ofthe U niversity’s com m ents and ourresponse to the com m ents. The fulltextofthe U niversity’s com m ents is enclosed. In sum m ary,the U niversity stated that: I. Indiana W esleyan U niversity’s A dultand ProfessionalStudies program s com ply w ith the 12-H ourRule,and the U niversity has adequately docum ented its com pliance w ith the 12-H ourRule. A . Study group m eetings constitute instructionalactivity. B. Study group m eetings w ere regularly scheduled. C. The U niversity adequately m onitored study group m eeting attendance. D . Study groups are partofan integrated curriculum m odule,and faculty m em bers w ere aw are ofw hich students did notattend the study group m eetings in a given w eek. E. A dditionalhours spentby students in preparation forexam inations is includable underthe 12-H ourRule. F. There is no statutory orregulatory basis forthe O IG ’s requirem entthatthe U niversity “ensure thatstudy group m eetings w ere taking place.” II. The 12-H ourRule is w idely acknow ledged to be unw orkable and ill-suited for nontraditionaleducationalprogram s. III. The recom m ended liability is based on an erroneous m ethodology and excludes significantam ounts oftim e thatcounttow ard com pliance w ith the 12-H our Rule. U niversity Com m ents. Indiana W esleyan U niversity’s A dultand ProfessionalStudies Program s C om ply W ith the 12-H our R ule,and the U niversity H as A dequately D ocum ented Its C om pliance W ith the 12-H our R ule. The U niversity stated thatthe D epartm enthas already concluded that“[t]here is no m eaningfulw ay to m easure 12 hours ofinstruction” fornontraditional education program s like those questioned by the draftauditreport. The U niversity im plem ented various policies and procedures to ensure thatthe A PS program s provided the requisite am ountof regularly scheduled instruction,exam inations orpreparation forexam inations required by the 12- H ourRule. The U niversity also stated thatthe O IG had established a docum entation rule that exceeded statutory and regulatory requirem ents. 11 O IG Response. The Reportto Congress on the D istance Education D em onstration Program s quoted by the U niversity refers to distance education classes thatallow students to m ove attheir ow n pace. Students in the A PS program s w ere required to attend w eekly study group m eetings w hich the U niversity did notconsideras hom ew ork. The follow ing excerptfrom the reportexpands the quotation provided by the U niversity to include additionalclarifying inform ation. Itis difficultifnotim possible fordistance education program s offered in nonstandard term s and non-term s to com ply w ith the 12-hourrule. The regulation w ould seem to require thatfull-tim e distance education students spend 12 hours perw eek “receiving” instruction. There is no m eaningfulw ay to m easure 12 hours ofinstruction in a distance education class. D istance education courses are typically structured in m odules thatcom bine both w hat[sic]an on-site course m ightbe considered instruction and out- of-class w ork,so there is no distinction betw een instructionaltim e an[d]‘hom ew ork.’ In addition,w hen they are given the flexibility to m ove attheirow n pace,som e students w illtake a shortertim e to m asterthe m aterial,w hile others m ighttake longer. O n A ugust10,2000,the D epartm entissued a N otice ofProposed Rulem aking (N PRM )concerning, am ong otheritem s,changes to the 12-H ourRule. In the N PRM ,the D epartm entstated,“[i]tw as neverintended thathom ew ork should countas instructionaltim e in determ ining w hethera program m eets the definition ofan academ ic year,since the 12-hourrule w as designed to quantify the in- class com ponentofan academ ic program .” W e have notestablished a docum entation rule. A n institution participating in the Title IV ,H EA program s is required to establish and m aintain on a currentbasis records thatdocum entthe eligibility ofits program s and its adm inistration ofthe Title IV program s in accordance w ith all applicable requirem ents (34 CFR § 668.24(a)). O urauditprocedures included review ing any docum entation thatdem onstrated the U niversity’s com pliance w ith the 12-H ourRule. W e did not require any specific docum entation as partofouraudit. W e found thatthe available docum entation and the U niversity’s internalcontrolsystem did notsupporta conclusion thatthe U niversity com plied w ith the 12-H ourRule. U niversity Com m ents. Study G roup M eetings C onstitute InstructionalA ctivity. The U niversity stated thatstudy group m eetings fallw ithin the scope of “regularly scheduled instruction, exam inations,orpreparation forexam inations.” The study group m eetings clearly relate to class preparation,and the regulations im ply thatactivities relating to class preparation qualify as instructionaltim e. O IG Response. W e determ ined thatthe U niversity did notestablish and im plem entadequate internalcontrols to ensure thatstudy group m eetings w ere actually scheduled and occurred as required by the U niversity. O n A ugust10,2000,the D epartm entissued a N PRM concerning, am ong otheritem s,changes to the 12-H ourRule. In the N PRM ,the D epartm entstated,“[i]tw as neverintended thathom ew ork should countas instructionaltim e in determ ining w hethera program m eets the definition ofan academ ic year,since the 12-hourrule w as designed to quantify the in- class com ponentofan academ ic program .” 12 U niversity Com m ents. Study G roup M eetings W ere R egularly Scheduled. The U niversity required thatstudy groups com plete a study group plan listing the nam es and addresses ofallgroup m em bers,and stating the day,tim e,and location oftheirw eekly study group m eeting. O therfactors thatindicated thatstudy team s w ere both regularand scheduled w ere: (i)w eekly tasks to be com pleted w ere specified in the course m odule,(ii)allteam m em bers w ere required to participate in team activities,(iii)assignm ents and projects w ere required to be com pleted betw een classes in orderforstudents to progress academ ically in the course,and (iv)faculty review ed the team assignm ents and projects. O IG Response. D uring the on-site fieldw ork,the U niversity did notinform us thatthis docum ent existed. In addition,the U niversity did notprovide us w ith any com pleted study group plans applicable to ourauditperiod to accom pany its response to the draftauditreport. W e found no reliable evidence to supportthe U niversity’s statem entthatm eetings w ere regularly scheduled for allstudy groups. U niversity Com m ents. The U niversity A dequately M onitored Study Team M eeting A ttendance. The U niversity required students to com plete end-of-course surveys. These surveys contained questions regarding the regularity and length ofstudy group m eetings. The O IG either failed to review ,rejected,orignored them . The draftreportalso ignores the tim e faculty spent responding to requests forassistance from the study groups. The O IG concluded that“the U niversity did notensure thatstudy group m eetings w ere scheduled and occurred as required.” There is no statutory orregulatory basis forthis claim . The regulation does notrequire the m inim um 12 hourofstudy to occurunderdirectfaculty supervision. The course m odule indicates thatstudy group m eetings are forthe developm entofgroup projects. The U niversity stated thatthe focus ofthe rule is on w hetherinstructionaltim e is regularly scheduled and noton w hetheran institution can docum entthatstudents actually com pleted 12 hours ofinstructionalactivity in any given w eek. O IG Response. W e are notattem pting to establish an attendance requirem ent.The regulations at34 CFR 668.24(a)(3)state: (a) A n institution shallestablish and m aintain on a currentbasis,any application for title IV ,H EA program funds and program records thatdocum ent– (3)Its adm inistration ofthe title IV ,H EA program s in accordance w ith allapplicable requirem ents;… The U niversity’s assertion thatthere is no requirem entthatitensure thatthe study group m eetings actually occurred is notaccurate. The U niversity is required to docum entcom pliance w ith the 12- H ourRule. W e exam ined w hetherstudy group m eetings occurred in orderto corroborate w hether those m eetings w ere regularly scheduled. W e review ed the studentand faculty handbooks,and w e held discussions w ith U niversity officials to obtain an understanding ofthe U niversity’s policies and procedures as they related to its attendance policy.D uring the on-site fieldw ork,the V ice President forA PS inform ed us thatthe U niversity does nottrack the occurrence ofstudy group m eetings. H ow ever,itdid begin tracking attendance afterthe auditperiod. The U niversity did notinform us aboutthe existence ofthe end-of-course surveys during the on-site fieldw ork. N ordid itprovide us w ith any com pleted surveys applicable to the auditperiod to accom pany its response to the draft 13 report. In the absence ofstudy group attendance reports thatreflected the occurrence ofstudy group m eetings orsom e othereffective control,w e have no basis to conclude thatthe U niversity adequately m onitored study group m eeting occurrence orcom pliance w ith the 12-H ourRule. U niversity Com m ents. Study G roups A re Partofan Integrated C urriculum M odule,and Faculty M em bers W ere A w are ofW hich Students D id N otA ttend the Study G roup M eetings in A ny G iven W eek. The U niversity contends the O IG ’s position is thatan instructorm ustbe presentatstudy group m eetings in orderforstudy groups to countas instructionaltim e underthe 12-H ourRule. The 12-H ourRule expressly states thattim e spentin preparation forexam inations is included in the overallcalculation ofinstructionalactivity. Faculty presence is notrequired w hen students prepare forexam inations,noris itrequired forthe faculty m em berto assess w hethera studentadequately participated in the w eekly m eetings because the required w ork is review ed and graded. O IG Response. O urobjective w as to determ ine w hetherthe U niversity com plied w ith the requirem ents ofthe 12-H ourRule. The U niversity defined its academ ic yearto com ply w ith the 12- H ourRule,and this definition required thatstudents attend fourhours perw eek in study groups. A ny tim e thatstudents spentin preparation forexam inations outside ofstudy groups w as not applicable to ourreview . O urdeterm ination thatan instructorw as notpresentatstudy group m eetings w as a resultofourreview ofthe U niversity’s overallinternalcontroloverstudy groups. If an instructorhad been presentatstudy group m eetings,w e w ould have considered this as evidence ofa strong control. U niversity Com m ents. A dditionalH ours SpentBy Students in Preparation for Exam inations is Includable U nder the 12-H our R ule. Som e A PS courses utilize traditionalexam inations,in addition to the study group presentations and othergraded activities. The draftauditreportignores the additionalhours spentby students in those courses preparing forexam inations,although the 12- H ourRule explicitly perm its tim e spentin preparation forexam inations to be counted tow ards com pliance. O IG Response. The U niversity defined its academ ic yearas consisting ofeighthours ofinstruction perw eek for45 w eeks. This definition provided the m inim um 360 hours ofinstruction as required by the 12-H ourRule. U niversity policy required that4 hours perw eek be spentin classroom w orkshops and 4 hours perw eek be spentin study team m eetings. W hetherornotstudents spent additionaltim e preparing forexam s is notrelevantto the U niversity’s definition ofan academ ic year. O n A ugust10,2000,the D epartm entissued a N PRM concerning,am ong otheritem s,changes to the 12-H ourRule. The D epartm entstated that“the only tim e spentin ‘preparation forexam s’ thatcould countas instructionaltim e w as the preparation tim e thatsom e institutions schedule as study days in lieu ofscheduled classes betw een the end ofform alclass w ork and the beginning of finalexam s.” The A PS program had no study days scheduled in lieu ofscheduled classes. U niversity Com m ents. There is N o Statutory or R egulatory R equirem entfor the O IG ’s R equirem ents Thatthe U niversity “Ensure ThatStudy G roup M eetings W ere Taking Place.” The U niversity stated thatthe A PS program s w ere nontraditional,lifelong learning program s that have a m inim um am ountofregularly scheduled instruction. The U niversity im plied thatto som e degree the A PS program s consisted ofinternships,cooperative education program s,orindependent 14 study. There is no basis in statute,regulation,published guidance,orcase law thatestablishes a requirem entthatthe U niversity m ustspecifically m onitoralleducationalactivity in orderto be counted underthe 12-H ourRule. O IG Response. D uring ourreview ,w e considered the U niversity’s m onitoring ofstudy group attendance as one possible elem entofthe U niversity’s internalcontrolsystem ,and w e determ ined thatthis controlw as w eak because the U niversity did notm aintain docum entation regarding attendance. U niversity officials did notinform us during the on-site field w ork thatstudy groups participated in any cooperative educational-type activities atem ployers w ithin the com m unity,and did notprovide any evidence to supportthis im plication as partofits response to the draftreport. In addition,the U niversity's catalog contained no indications thatthis w as partofthe students’ curriculum . U niversity Com m ents. The 12-H our R ule is W idely A cknow ledged To Be U nw orkable and Ill- Suited for N ontraditionalEducation Program s. The U niversity stated thatthe underlying basis forthe 12-H ourRule and its continued applicability to the Title IV program s are presently in serious doubt. The H EA requires a m inim um of30 w eeks ofinstructionaltim e;how ever,the 12-hourper w eek requirem entw as added by regulation and therefore does nothave any statutory basis. The appropriateness ofthe 12-H ourRule,and the im m easurable burden ithas created forinstitutions, has recently com e underincreased scrutiny. D espite the due date ofM arch 31,2001,the D epartm entdid notissue its reporton the 12-H ourRule untilJuly 2001. The D epartm enthas not yetcom plied w ith a legislative m andate to reportto Congress on the 12-H ourRule. The recently introduced InternetEquity and Education A ctof2001 effectively elim inates the 12-H ourRule. O IG Response. The U niversity w as required to com ply w ith the H EA and the regulations in effect during ourauditperiod. The 12-H ourRule w as a regulatory com plem entto the statutory definition ofan academ ic year,and the U niversity acknow ledged itw as required to com ply w ith it. A s w ith any otherregulation,the U niversity m ustbe able to docum entthatitis in com pliance. A ccordingly, the U niversity m ustbe able to docum entthatits academ ic yearprovided 360 hours ofinstruction for full-tim e students. U niversity Com m ents. The R ecom m ended Liability is Based on an Erroneous M ethodology and Excludes SignificantA m ounts ofTim e ThatC ountTow ard C om pliance W ith the 12- H our R ule. The O IG fails to considerinstructionalactivity includable underthe 12-H ourRule occurs outside ofthe classroom and study group m eetings. Students’grades are determ ined through traditionalexam inations,graded individualpresentations and papers,graded group projects,ora com bination thereof. N o legalauthority requires the tim e spenton these activities to be m onitored orm easured underthe 12-H ourRule,butitm ustbe assum ed thatstudents spentadditionaltim e preparing forthese exam inations and graded activities. O IG Response. The U niversity defined its academ ic yearas consisting ofa m inim um offourhours perw eek in classroom w orkshops,and fourhours perw eek in study group m eetings. Ifindividual students spentadditionaltim e in preparation forexam inations orhom ew ork-type activities,itw ould notbe relevantto the U niversity’s com pliance w ith the 12-H ourRule. Students w ere required to spend fourhours perw eek in study group m eetings.A s previously noted,the D epartm enthas stated that“[i]tw as neverintended thathom ew ork should countas instructionaltim e in determ ining 15 w hethera program m eets the definition ofan academ ic year,since the 12-hourrule w as designed to quantify the in-class com ponentofan academ ic program .” BA C K G R O U N D Founded in 1890,W esleyan is a liberalarts university w ith its m ain cam pus in M arion,Indiana. The N orth CentralA ssociation ofColleges and Schools accredits itto offerA ssociate, Baccalaureate,and M asters degrees. In 1985,W esleyan founded the Leadership Education for A dultProfessionals (LEA P)program to m eetthe needs ofadultstudents. Since thattim e,it com bined the LEA P program w ith otherprogram s to form the D ivision ofA dultand Professional Studies. In February 1985,W esleyan contracted w ith IPD ,a subsidiary ofthe A pollo G roup,Inc.,to help im prove its D ivision ofA dultand ProfessionalStudies. W esleyan contracted w ith IPD for m arketing,recruiting and accounting support,w hile itprovided the curriculum ,facilities,and faculty. D uring the auditperiod,W esleyan and IPD splittuition revenue so thatW esleyan received 75 percentand IPD received 25 percent,butW esleyan received 100 percentofbook,m aterial, com puter,and otherm iscellaneous fees. D uring the period July 1,1997,through June 30,2000,W esleyan participated in the FSEO G ,Pell, and FFEL program s. W esleyan orD epartm entrecords indicated that,during the period,W esleyan orlenders disbursed $31,682,782 on behalfofstudents in the A PS program s. Specifically, W esleyan’s records indicated thatitdisbursed FSEO G totaling $3,268. The D epartm ent’s records (StudentPaym entSum m ary (SPS)and N ationalStudentLoan D ata System (N SLD S))indicated W esleyan disbursed Pelltotaling $1,656,963 and lenders disbursed FFEL of$30,022,551. Title IV ofthe H EA of1965,as am ended,authorizes these program s,and they are governed by regulations contained in 34 CFR Parts 676,682,and 690,respectively. In addition,these program s are subject to the provisions contained in the StudentA ssistance G eneralProvisions regulations (34 CFR Part 668),and W esleyan m ustcom ply w ith the InstitutionalEligibility regulations (34 CFR Part600)to participate in these program s. Regulatory citations in the reportare to the codifications revised as ofJuly 1,1997,1998,and 1999. 16 A U D IT SC O PE A N D M ETH O D O LO G Y The objectives ofthe auditw ere to determ ine w hetherW esleyan com plied w ith the H EA and Title IV regulations concerning the prohibition on m aking incentive paym ents based on success in enrolling students and course length. W e specifically focused ourreview on W esleyan’s contract w ith IPD and program s ofstudy related to thatcontract,and the area ofrequired hours ofinstruction in an academ ic yearunderthe 12-H ourRule. To accom plish ourobjectives,w e review ed W esleyan’s w ritten policies and procedures,accounting and bank records,and studentfinancialassistance reports. W e review ed W esleyan’s program participation agreem entw ith the D epartm ent,its contractw ith IPD ,and IPD ’s com pensation plan forits recruiters. In addition,w e review ed single auditreports prepared by W esleyan’s Certified Public A ccountants. W e relied on com puter-processed data W esleyan extracted from its financialassistance database. W e used aw ard and disbursem entdata from the D epartm ent’s SPS and N SLD S to corroborate inform ation obtained from W esleyan. W e did this by com paring W esleyan data w ith Pelland loan disbursem ents forallstudents in the D epartm ent’s records. W e held discussions w ith W esleyan officials to gain an understanding ofthe processes forrequesting and draw ing dow n Federalfunds, and forits accounting forrevenue from the A PS program s. Based on these tests and assessm ents, w e concluded thatthe data W esleyan provided w ere sufficiently reliable to use in m eeting the audit’s objectives. The auditcovered the period July 1,1997,through June 30,2000. W e perform ed the on-site field w ork in M arion,Indiana,during the period O ctober31 – N ovem ber8,2000. W e had ourexit conference on N ovem ber7,2000. W e conducted the auditin accordance w ith governm entauditing standards appropriate to the scope ofauditstated above. M ethodology U sed to D eterm ine the Title IV Funds Im properly D isbursed for Finding 2 The U niversity’s academ ic yearw ould need to be 90 w eeks in length foritto m eetthe 360-hour requirem entforan academ ic year. Therefore,the U niversity could not(1)disburse Title IV funds to students during a 90-w eek academ ic period thatexceeded the m axim um annualam ounts foran academ ic yearallow ed underthe FFEL and Pellprogram s and (2)disburse FFEL funds to students w ho w ere enrolled less than half-tim e during a 90-w eek academ ic period. FFEL D isbursem ents in Excess ofA nnualLim its. W e com pared the disbursem ents to the applicable annualloan lim it. Students w ere noteligible to receive the am ounts thatexceeded the lim it. Forthe tw o groups,as described below ,w e estim ated $ 4,814,000 ofdisbursem ents that exceeded the annuallim its. Forthe FFEL estim ates,w e analyzed disbursem ents fortw o separate groups ofstudents identified from the U niversity-provided files. Forstudents in each group,w e analyzed loan period startdates and the loan disbursem ents covering a 90-w eek academ ic period. 17 The firstgroup consisted ofstudents w ho received disbursem ents forloans with loan startdates in the period July 1,1997,through June 30,1998,A N D disbursem ents forloans with loan startdates in the period July 1,1998,through June 30,1999. The second group,w hich excludes students included in the firstgroup,consisted ofstudents w ho received disbursem ents forloans with loan startdates in the period July 1,1998,through June 30, 1999,A N D disbursem ents forloans with loan startdates in the period July 1,1999,through June 30,2000. PellD isbursem ents in Excess ofA nnualLim its. W e identified the Pellfunds aw arded to students w ho started betw een July 1,1997 and June 30,1998,and the Pellfunds aw arded to students w ho started betw een July 1,1998 and June 30,1999. To determ ine the am ountofPellfunds thata studentm ay receive in a paym entperiod,institutions w ithoutstandard term s m ultiply the m axim um am ountshow n on schedules published by the Secretary by a specified fraction. The num eratorof the fraction is the num berofcredithours in a paym entperiod and the denom inatoris the num berof credithours in an academ ic year. Because the U niversity used the credithours fora 45-w eek academ ic yearratherthan a 90-w eek academ ic yearas the denom inator,the Pellaw ard w as overstated by one-half,or50 percent. W e estim ated $828,000 in Pelldisbursem ents exceeded the m axim um am ountallow ed. STA TEM EN T O N M A N A G EM EN T C O N TR O LS A s partofourreview ,w e gained an understanding ofW esleyan’s m anagem entcontrolstructure,as w ellas its policies,procedures,and practices applicable to the scope ofthe audit. W e identified applicable significantcontrols related to institutionaleligibility,studentenrollm ent,and contract paym ents. W e did nottestto determ ine the levelofcontrolrisk,butinstead,com pared Pelland loan transactions forallstudents in the A PS program s. D ue to inherentlim itations,a study and evaluation m ade forthe lim ited purpose stated above w ould notnecessarily disclose allm aterialw eaknesses in the m anagem entcontrols. H ow ever,our assessm entdisclosed significantm anagem entcontrolw eaknesses thatadversely affected W esleyan’s ability to adm inisterthe Title IV program s. These w eaknesses include inadequate controls overincentive-based paym ents forstudentenrollm entand the am ountoftim e spentin instruction. The A uditResults section ofthis reportfully discusses these w eaknesses and their effects. 18
Indiana Wesleyan University, Adult and Professional Studies Administration of Title IV Programs, Marion, Indiana.
Published by the Department of Education, Office of Inspector General on 2001-09-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)