oversight

Olivet Nazareen University, School of Graduate and Adult Studies Administration of Title IV Programs, Bourbonnais, Illinois.

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)

funds. We estimated that the University overawarded and disbursed $503,400 in Title IV
funds to its SGAS students.1

Nonterm Institutions Must Provide a Minimum of 360 Hours of Instructional Time
in an Academic Year

Section 481(a)(2) of the HEA states that the term academic year shall:

      [R]equire a minimum of 30 weeks of instructional time, and, with respect to an
      undergraduate course of study, shall require that during such minimum period of
      instructional time a full-time student is expected to complete at least 24 semester or
      trimester hours or 36 quarter hours at an institution that measures program length in
      credit hours . . . .

The regulations at 34 CFR §668.2(b) clarify what constitutes a week of instructional
time:

      [T]he Secretary considers a week of instructional time to be any week in which at
      least one day of regularly scheduled instruction, examinations, or preparation for
      examinations occurs . . . For an educational program using credit hours but not
      using a semester, trimester, or quarter system, the Secretary considers a week of
      instructional time to be any week in which at least 12 hours of regularly scheduled
      instruction, examinations, or preparation for examinations occurs . . . .

These regulations, commonly known as the 12-Hour Rule, require the equivalent of 360
instructional hours per academic year (12 hours per week for 30 weeks). Institutions
were required to comply with the 12-Hour Rule as of July 1, 1995.

In the preamble to the 12-Hour Rule regulations published on November 29, 1994, the
Secretary explained that an institution with a program that meets less frequently than 12
hours per week would have to meet for a sufficient number of weeks to result in the
required instructional hours. For example, if an institution decided to establish an
academic year for a program with classes that met for 10 hours per week, the classes
would need to be held for 36 weeks to result in 360 hours.

The University measured its SGAS educational programs in credit hours, but did not use
a semester, trimester, or quarter system. The SGAS programs consisted of a series of
courses for which a student generally received three credit hours per course. The
University defined its academic year as 24 credit hours in 45 weeks. To comply with the
12-Hour Rule, the University would need to provide 8 hours of instruction per week for
each week in its 45-week academic year to equal 360 hours per year.



1
 The dollars we estimated as overawarded are duplicative of the dollars we determined as overawarded in
ED-OIG/A05-A0030, Olivet Nazarene University, School of Graduate and Adult Studies Administration of
Title IV Programs issued on May 21, 2001.


                                                   2
The University Did Not Maintain Documentation to Show That Students Received
the Required 360 Hours of Instruction For Each Academic Year

Management controls are the policies and procedures adopted and implemented by an
organization to ensure that it meets its goals which, as applicable to this situation, are
compliance with laws and regulations. According to the University’s student handbook,
students were required to meet in class for four hours per week, and were expected to
meet an additional four hours per week in study groups. The handbook describes the
study group requirement as follows: “Each group meets outside of the required class time
to discuss and prepare assignments and share learning resources.” The University
counted the study group time for purposes of the 12-Hour Rule. We found that the
University did not establish and implement management controls to ensure that all
students actually participated in study group meetings.

It was the University’s policy that an instructor be present at regular classes and maintain
attendance records for the classes. However, the University did not apply this policy to
study groups. The University’s policy was that if a student missed more than one class or
study group, the student was withdrawn from the program. The University had a form to
record attendance that study group members were required to complete and submit to the
instructor. However, University officials informed us that the instructor returned the
form to the students at the end of the course, and University did not maintain copies of
the completed forms. We randomly selected six classes from each year of the audit
period to review classroom and study group attendance, but the University was unable to
provide us with any completed study group attendance forms.

Based on our review of the University’s written policies and procedures, interviews with
University officials, and the lack of study group records, the University had no assurance
that study groups were taking place to meet the requirements of the 12-Hour Rule.

Failing to Comply With the 12-Hour Rule Resulted in the University Overawarding
$503,400 of Title IV Funds To Its Undergraduate Students

Because the University did not ensure that study group meetings were actually taking
place as required, the meetings do not qualify for inclusion in the 12-Hour Rule
calculation. Consequently, the University-defined academic year of 45 weeks only
provided 180 hours of the required minimum of 360 hours of instructional time (four
hours of instruction per week for 45 weeks equals 180 hours of classroom hours). In
order to meet the 360-hour requirement, the University’s academic year would need to be
90 weeks in length. By using an academic year of 45 weeks rather than 90 weeks for
awarding Title IV funds, the University disbursed amounts to students that exceeded the
maximum amounts for an academic year allowed under the FFEL and Pell programs.
We estimated that the University overawarded $503,400 of Title IV funds to SGAS
students. The students included in this amount had FFEL and Pell with loan/grant
periods from July 1, 1996, through June 30, 1999.




                                             3
     •   FFEL Loan Limits. Title 34 CFR § 682.603(d) stipulates that an institution
         may not certify a loan application that would result in a borrower exceeding the
         maximum annual loan amounts specified in 34 CFR § 682.204. We estimated
         that $434,500 in FFEL disbursements exceeded the annual loan limits.

     •   Pell Grant Maximum. Title 34 CFR § 690.62(a) specifies that the amount of a
         student’s Pell Grant for an academic year is based upon schedules published by
         the Secretary for each award year. The payment schedule lists the maximum
         amount a student could receive during a full academic year. We estimated that
         $68,900 in Pell disbursements exceeded the maximum amount allowed.

Institutions were required to comply with the 12-Hour Rule as of July 1, 1995. Because
the University’s academic year for its SGAS programs did not meet the requirements of
the 12-Hour Rule, the University improperly disbursed Title IV funds to its SGAS
students for FFEL and Pell awarded during the period July 1, 1996, through June 30,
1999.

Recommendations

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

1. Immediately develop an academic year for its SGAS programs that satisfies the 12-
   Hour Rule as a condition for continued participation in Title IV programs.

2. Return to lenders the FFEL funds disbursed that exceeded the loan limits for an
   academic year. We estimated the amount was $434,500 for SGAS students who had
   loans with beginning dates between July 1, 1996 through June 30, 1999. Also, the
   University should repay the interest and special allowance costs incurred on federally
   subsidized loans.

3. Return the Pell funds disbursed to students that exceeded the allowable award for an
   academic year. We estimated that the amount was $68,900 for students who had Pell
   with grant period dates beginning between July 1, 1996 through June 30, 1999.

4. Determine the amount of FFEL and Pell funds overawarded and disbursed from July
   1, 1999 through the present. The amounts should be returned to lenders or the
   Department as appropriate.

The dollars in this section of the report are duplicative of the dollars contained in the
Recommendations section of ED-OIG/A05-A0030, Olivet Nazarene University, School
of Graduate and Adult Studies Administration of Title IV Programs issued on May 21,
2001 (discussed in Other Matters below). Only those amounts not recovered under
OIG/A05-A0030 should be recovered by SFA as a result of this audit.




                                             4
University Comments and OIG Response

The University did not agree with our conclusions and recommendations. The following
is a summary of the University’s comments and our response to the comments. The full
text of the University’s comments is enclosed.

In summary, the University stated that:

     I. The University’s School of Graduate and Adult Studies programs satisfy
        the 12-Hour Rule, and the University has adequately documented its
        compliance.

         A. Study group meetings constitute instructional activity.
         B. Study group meetings were regularly scheduled.
         C. The University adequately monitored study group meeting
            attendance.
         D. Study groups are part of an integrated curriculum module, and faculty
            members were aware of which students did not attend the study group
            meetings in any given week.
         E. Additional hours spent by students in preparation for examinations is
            includable under the 12-Hour Rule.
         F. There is no statutory or regulatory basis for the OIG’s requirement
            that the University “ensure that all students actually participate in
            study group meetings.”

     II. The 12-Hour Rule is widely acknowledged to be unworkable and ill-
         suited for nontraditional educational programs.

     III. The recommended liability is based on an erroneous methodology and
          excludes significant amounts of time that count toward compliance with
          the 12-Hour Rule.

         A. The draft audit report excludes clinical hours required of nursing
            majors.
         B. The draft audit report wrongly excludes individual and group
            preparation for examinations, presentations and other graded activities
            that affected students’ final grades.

The University’s School of Graduate and Adult Studies Programs Satisfy the 12-
Hour Rule, and the University Has Adequately Documented Its Compliance

The University stated that the Department has already concluded that “[t]here is no
meaningful way to measure 12 hours of instruction” for nontraditional education
programs like those questioned by the draft audit report. The University implemented
various policies and procedures to ensure that the SGAS programs provided the requisite
amount of regularly scheduled instruction, examinations or preparation for examinations


                                            5
required by the 12-Hour Rule. The University also indicated that the OIG had established
documentation rules that were without legal justification and in contrast to regulatory
guidance.

OIG Response

The Report to Congress on the Distance Education Demonstration Programs quoted
above refers to distance education classes that allow students to move at their own pace.
The courses in the SGAS programs were not offered through distance education or
telecommunications. Students in the SGAS programs were required to attend weekly
study group meetings which the University did not consider as homework. The following
excerpt from the report expands the quotation provided by the University to include
additional clarifying information.

     It is difficult if not impossible for distance education programs offered in
     nonstandard terms and nonterms to comply with the 12-hour rule. The
     regulation would seem to require that full-time distance education students
     spend 12 hours per week “receiving” instruction. There is no meaningful
     way to measure 12 hours of instruction in a distance education class.
     Distance education courses are typically structured in modules that combine
     both what [sic] an on-site course might be considered instruction and out-of-
     class work, so there is no distinction between instruction time an[d]
     ‘homework.’ In addition, when they are given the flexibility to move at their
     own pace, some students will take a shorter time to master the material, while
     others might take longer.

On August 10, 2000, the Department issued a Notice of Proposed Rulemaking (NPRM)
concerning, among other items, changes to the 12-Hour Rule. In the NPRM, the
Department stated, “[i]t was never intended that homework should count as instructional
time in determining whether a program meets the definition of an academic year, since
the 12-hour rule was designed to quantify the in-class component of an academic
program.”

We have not established a documentation rule. An institution participating in the Title
IV, HEA programs is required to establish and maintain on a current basis records that
document the eligibility of its programs and its administration of the Title IV programs in
accordance with all applicable requirements (34 CFR § 668.24(a)). Our audit procedures
included reviewing any documentation that demonstrated the University’s compliance
with the 12-Hour Rule. We did not require any specific documentation as part of our
audit. We found that the available documentation and the University’s internal control
system did not support a conclusion that the University complied with the 12-Hour Rule.

Study Group Meetings Constitute Instructional Activity

The University stated that study group meetings fall within the scope of “regularly
scheduled instruction, examinations, or preparation for examinations.” The study group


                                             6
meetings clearly relate to class preparation, and the regulations imply that activities
relating to class preparation qualify as instructional time.

OIG Response

We determined that the University did not establish and implement adequate internal
controls to ensure that students were actually scheduling and attending study group
meetings as required by the University. On August 10, 2000, the Department issued a
NPRM concerning, among other items, changes to the 12-Hour Rule. In the NPRM the
Department stated, “[i]t was never intended that homework should count as instructional
time in determining whether a program meets the definition of an academic year, since
the 12-hour rule was designed to quantify the in-class component of an academic
program.”

Study Group Meetings Were Regularly Scheduled

The University required that study groups complete a “Study Group Form” that
established that particular group’s weekly meeting time and location, and “Study Group
Contracts” that established procedures for changing the meeting time in any given week.
Other factors that indicated that study groups were both regular and scheduled were: (i)
weekly tasks to be completed were specified in the course module, (ii) all group members
were required to participate in group activities, (iii) assignments and projects were
required to be completed between classes in order for students to progress academically
in the course, and (iv) faculty reviewed the group assignments and projects.

OIG Response

We found no reliable evidence to support the University's statement that meetings
totaling four hours a week were regularly scheduled for all study groups. During the on-
site field work, the University did not inform us that study group forms and study group
contracts existed. During our follow-up visit on August 30, 2001, the University
provided us only fourteen completed study group forms and three study group contracts.
Thirteen of the study group forms were undated, so we could not determine if they were
applicable to our audit period. The one form that was dated indicated the group planned
to meet for two hours a week, not the four required hours. Of the undated forms, only 1
contained all information related to scheduled meetings; that is, the meeting times,
location, and day of the week. Five forms had no meeting data and seven forms did not
have an ending time, so they did not document that the groups scheduled the required
four hours. The three study group contracts actually were undated "ground rules" the
groups agreed they would follow. One group called its ground rules a contract, but did
not include sufficient data to document that it planned to schedule four hours a week for
the group meeting. The Associate Dean of the School of Graduate and Adult Studies
informed us that the University does not have official study group contracts. Rather, as
part of the first homework assignment, the groups are to create ground rules for the
group, which are more informal in nature.




                                              7
The University Adequately Monitored Study Group Meeting Attendance

In addition to the study group contracts, the University implemented an attendance policy
which required students to be withdrawn if he or she missed more than one class or study
group meeting. The OIG acknowledges this policy but disregards its relevance because
the policy is insufficient without weekly attendance sheets for all study group meetings.
There is no statutory or regulatory basis for this distinction. The OIG did not consider
documentation showing that SGAS students were administratively transferred or
withdrawn from courses due to poor attendance, which were brought to the University’s
attention through a “Study Group Written Complaint Form.” Also, the OIG reviewed
end-of-course surveys which included four questions on study groups, but rejects them as
insufficient documentation. The University stated that the focus of the rule is on whether
instructional time is regularly scheduled and not on whether an institution can document
that students actually completed 12 hours of instructional activity in any given week.

OIG Response

We are not attempting to establish an attendance requirement. The regulations at
34 CFR § 668.24(a)(3) state:

       (a) An institution shall establish and maintain on a current basis, any
           application for title IV, HEA program funds and program records that
           document –
       (3) Its administration of the title IV, HEA programs in accordance with all
           applicable requirements; …

It is incumbent on the University to demonstrate that it provides the requisite number of
instructional hours. We examined whether study group meetings occurred in order to
corroborate whether those meetings were regularly scheduled. In the draft report, the
OIG acknowledged that the University established an attendance policy, which it
considered to be highly important. The University did not provide us with any reliable
evidence to support its assertions. With one exception that was prior to our audit period,
it did not provide us with any documentation showing students were administratively
transferred or withdrawn from courses. The University did not provide us with any
completed study group written complaint forms during our on-site field work or when we
made the follow-up visit to demonstrate that study group members brought poor
attendance to its attention. The end-of-course surveys the University made available do
not provide evidence that students actually scheduled and that study group meetings
occurred. In the absence of study group attendance reports that reflected the occurrence
of study group meetings or some other effective control, we have no basis to conclude
that the University adequately monitored study group meeting occurrence or compliance
with the 12-Hour Rule.




                                            8
Study Groups Are Part of an Integrated Curriculum Module, and Faculty Members
Were Aware of Which Students Did Not Attend the Study Group Meetings in Any
Given Week

The University contends the OIG’s position is that an instructor must be present at study
group meetings in order for study groups to count as instructional time under the 12-Hour
Rule. The 12-Hour Rule expressly states that time spent in preparation for examinations
is included in the overall calculation of instructional activity. Faculty presence is not
required when students prepare for examinations, nor is it required for the faculty
member to assess whether a student adequately participated in the weekly meetings
because the required work is reviewed and graded.

OIG Response

Our objective was to determine whether the University complied with the requirements of
the 12-Hour Rule. The University defined its academic year to comply with the 12-Hour
Rule, and this definition required that students schedule and attend four hours per week of
study groups. Any time that students spent in preparation for examinations outside of
study groups was not applicable to our review. Our determination that an instructor was
not present at study group meetings was a result of our review of the University’s overall
internal control over study groups. If an instructor had been present at study group
meetings, we would have considered this as evidence of a strong control. In addition, the
University did not provide us with any completed study group attendance forms to show
that the study group meetings were scheduled and occurred.

Additional Hours Spent By Students in Preparation for Examinations is Includable
Under the 12-Hour Rule

Some SGAS courses utilize traditional examinations, in addition to the study group
presentations and other graded activities. The draft audit report ignores the additional
hours spent by students in those courses preparing for examinations, although the 12-
Hour Rule explicitly permits time spent in preparation for examinations to be counted
towards compliance.

OIG Response

The University defined its academic year as consisting of eight hours of instruction per
week for 45 weeks. This definition provided the minimum 360 hours of instruction as
required by the 12-Hour Rule. University policy required that 4 hours per week be spent
in classroom workshops and 4 hours per week be spent in study group meetings.
Whether or not students spent additional time preparing for exams is not relevant to the
University’s definition of an academic year. On August 10, 2000, the Department issued
a NPRM concerning, among other items, changes to the 12-Hour Rule. The Department
stated that “the only time spent in ‘preparation for exams’ that could count as
instructional time was the preparation time that some institutions schedule as study days
in lieu of scheduled classes between the end of formal class work and the beginning of


                                             9
final exams.” The SGAS programs had no study days scheduled in lieu of scheduled
classes.

There is No Statutory or Regulatory Basis for the OIG’s Requirement That the
University “Ensure That All Students Actually Participate in Study Group
Meetings”

The 12-Hour Rule requires only a minimum of regularly scheduled instructional hours,
but the draft report attempts to expand the rule to require such hours be actually attended
and well documented. There is no stated requirement for an institution to specifically
document each hour spent by students in activities allowable under the 12-Hour Rule.
The University stated that the SGAG programs were nontraditional, lifelong learning
programs designed to reduce the number of days spent in a traditional classroom setting.
The University implied that to some degree the SGAS programs consisted of internships,
cooperative education programs, or independent study. There is no basis in statute,
regulation, published guidance, or case law that establishes a requirement that the
University must specifically monitor all educational activity in order to be counted under
the 12-Hour Rule.

OIG Response

During our review, we considered the University’s monitoring of study group attendance
as one possible element of the University’s internal control system, and we determined
that this control was weak because the University did not maintain documentation
regarding the scheduling or occurrence of study group meetings. University officials did
not inform us during the on-site field work that study groups participated in any
cooperative educational-type activities at employers within the community, and did not
provide any evidence to support the implication that its SGAS programs consisted of
internships, cooperative education programs, or independent study as part of its response
to the draft report. In addition, the University's catalog contained no indications that this
was part of the students’ curriculum.

The 12-Hour Rule is Widely Acknowledged To Be Unworkable and Ill-Suited for
Nontraditional Education Programs

The University stated that the underlying basis for the 12-Hour Rule and its continued
applicability to the Title IV programs are presently in serious doubt. The HEA requires a
minimum of 30 weeks of instructional time; however, the 12-hour per week requirement
was added by regulation and therefore does not have any statutory basis. The
appropriateness of the 12-Hour Rule, and the enormous paperwork burden it has created
for institutions, has recently come under increased scrutiny. Despite the due date of
March 31, the Department did not issue its report on the 12-Hour Rule until July. The
recently introduced Internet Equity and Education Act of 2001 effectively eliminates the
12-Hour Rule.




                                             10
OIG Response

The University was required to comply with the HEA and the regulations in effect during
our audit period. The 12-Hour Rule was a regulatory complement to the statutory
definition of an academic year which the University acknowledged it was required to
comply with. As with any other regulation, the University must be able to document that
it is in compliance. Accordingly, the University must be able to document that it
scheduled 360 hours of instruction for full-time students.

The Recommended Liability is Based on an Erroneous Methodology and Excludes
Significant Amounts of Time That Count Toward Compliance With the 12-Hour
Rule

A.     The Draft Audit Report Excludes Clinical Hours Required of Nursing
       Majors

The University stated that we omitted the 124 clinical hours in the nursing program when
quantifying its liability.

OIG Response

We have no basis for including additional hours for nursing students in our liability
calculation. During our on-site field work, the University did not inform us that the
defined academic year for nursing students differed from the academic year for other
SGAS students because of clinical hours. The financial aid data the University provided
us did not identify nursing students separately, and did not indicate that the aid for any
SGAS student was calculated on a different basis. Although the Faculty and Program
Coordinator of the Nursing Program and the University's catalog indicated that nursing
students have to attend both clinical hours and study group meetings, they did not specify
the number of clinical hours required, or whether they are in addition to or combined with
study group hours.

B.     The Draft Audit Report Wrongly Excludes Individual and Group
       Preparation for Examinations, Presentations and Other Graded Activities
       That Affected Students’ Final Grades

The OIG fails to consider that instructional activity includable under the 12-Hour Rule
occurs outside of the classroom and study group meetings. Students’ grades are
determined through traditional examinations, graded individual presentations and papers,
graded group projects, or a combination thereof. No legal authority requires the time
spent on these activities to be monitored or measured under the 12-Hour Rule, but it must
be assumed that students spent additional time preparing for these examinations and
graded activities.




                                           11
OIG Response

The University defined its academic year as consisting of a minimum of four hours per
week in classroom workshops, and four hours per week in study group meetings. If
individual students spent additional time in preparation for examinations or homework-
type activities, it would not be relevant to the University’s compliance with the 12-Hour
Rule. Students were required to spend four hours per week in study group meetings.
Our review focused on whether the University had documentation to show that students
spent the required four hours per week in these group meetings. As previously noted, the
Department has stated that “[i]t was never intended that homework should count as
instructional time in determining whether a program meets the definition of an academic
year, since the 12-hour rule was designed to quantify the in-class component of an
academic program.”

                                OTHER MATTERS
During our audit work, we also identified an issue relating to payments made to the
Institute for Professional Development (IPD), a subsidiary of the Apollo Corporation.
The payments were made under a contract between the University and IPD and were
based on IPD’s success in securing enrollments. This matter was addressed in a separate
report that was issued to the University in final on May 21, 2001, ED-OIG/A05-A0030,
Olivet Nazarene University, School of Graduate and Adult Studies Administration of
Title IV Programs.

                                  BACKGROUND
Founded in 1907, the University is a liberal arts university with its main campus in
Bourbonnais, Illinois. The North Central Association of Colleges and Schools accredits
it to offer Associate, Baccalaureate, and Masters degrees. In 1949, the University began
to approve adult education when its North Central Association Studies Committee
recommended that it place an increased emphasis on adult education and “the
opportunities for lifelong learning.”

On October 17, 1989, the University contracted with IPD, a subsidiary of the Apollo
Corporation, to help improve its existing School of Graduate and Adult Studies. As a
result, the University added Baccalaureate degree programs in Management, Nursing,
and Business Administration to the SGAS, and revised its existing Masters of Business
Administration program. The University contracted with IPD for marketing and
accounting support, while it provided the curriculum, facilities, and faculty. The
University and IPD split tuition revenue equally, but the University received 100 percent
of book, material, computer, and other miscellaneous fees.

During the period July 1, 1996, through June 30, 1999, the University participated in the
Perkins, FSEOG, Pell, and FFEL programs. University or Department records indicated
that, during the period, the University or lenders disbursed $3,161,750 on behalf of
students in the SGAS programs. Specifically, the University’s records indicated that it


                                            12
disbursed Perkins totaling $2,000 and FSEOG totaling $18,740. The Department’s
records (Student Payment Summary for Pell and National Student Loan Data System for
FFEL) indicated the University disbursed Pell totaling $137,901 and lenders disbursed
FFEL of $3,003,109. Title IV of the HEA of 1965, as amended, authorizes these
programs, and they are governed by regulations contained in 34 CFR Parts 674, 676, 682,
and 690, respectively. In addition, these programs are subject to the provisions contained
in the Student Assistance General Provisions regulations (34 CFR Part 668), and the
University must comply with the Institutional Eligibility regulations (34 CFR Part 600) to
participate in these programs. Regulatory citations in the report are to the codifications
revised as of July 1, 1996, 1997, and 1998.

                   AUDIT SCOPE AND METHODOLOGY
The objective of the audit was to determine compliance with the HEA and Title IV
regulations in the area of course length. We focused our review on the area of required
hours of instruction in an academic year under the 12-Hour Rule.

To accomplish our objective, we reviewed the University’s written policies and
procedures and student financial assistance reports. We randomly selected and reviewed
six classes from each year during the audit period. We interviewed University and IPD
management officials and staff.

We relied on computer-processed data the University extracted from its financial
assistance database. We used award and disbursement data from the Department’s
Student Payment Summary and National Student Loan Data System to corroborate
information obtained from the University. We did this by comparing Pell and loan
disbursements for all students in the Department’s records with University data. We held
discussions with University officials to gain an understanding of the processes for
requesting and drawing down Federal funds, and for its accounting of revenue from the
SGAS programs. Based on these tests and assessments, we concluded that the data the
University provided were sufficiently reliable to use in meeting the audit’s objectives.

The audit covered the period July 1, 1996, through June 30, 1999. We performed the on-
site fieldwork in Bourbonnais, Illinois, during the periods August 15-25, September 6,
and September 29, 2000. We made a follow-up visit on August 30, 2001, to review
documents the University referred to in its response to the draft report. We conducted the
audit in accordance with government auditing standards appropriate to the scope of
review described above.

Methodology Used to Determine the Title IV Funds Improperly Disbursed by the
University

The University’s academic year would need to be 90 weeks in length for it to meet the
360-hour requirement for an academic year. Therefore, the University could not
disburse Title IV funds to students during a 90-week academic period that exceeded the



                                            13
maximum annual amounts for an academic year allowed under the FFEL and Pell
programs.

FFEL Disbursement in Excess of Annual Limits. We compared the disbursements to the
applicable loan limit. Students were not eligible to receive the amounts that exceeded the
limit. For the two groups (as described below), we estimated $434,500 in disbursed Title
IV funds exceeded the annual limits.

For the FFEL estimates, we analyzed disbursement for two separate groups of students
identified from the University-provided files. For students in each group, we analyzed
loan period start dates and the loan disbursements covering a 90-week academic period.

The first group consisted of students who received disbursements for loans with loan
start dates in the period July 1, 1996, through June 30, 1997, AND disbursements for
loans with loan start dates in the period July 1, 1997, through June 30, 1998.

The second group, which excludes students included in the first group, consisted of
students who received disbursements for loans with loan start dates in the period July 1,
1997, through June 30, 1998, AND disbursements for loans with loan start dates in the
period July 1, 1998, through June 30, 1999.

Pell Disbursements in Excess of Annual Limits. We identified the Pell funds awarded to
students who started between July 1, 1996 and June 30, 1997, and the Pell funds awarded
to students who started between July 1, 1997 and June 30, 1998. To determine the
amount of Pell funds that a student may receive in a payment period, institutions without
standard terms multiply the maximum amount shown on schedules published by the
Secretary by a specified fraction. The numerator of the fraction is the number of credit
hours in a payment period and the denominator is the number of credit hours in an
academic year. Because the University used the credit hours for a 45-week academic
year rather than a 90-week academic year as the denominator, the Pell awards were
overstated by one-half, or 50 percent. We estimated $68,900 in Pell disbursements
exceeded the maximum amount allowed.




                                            14
             STATEMENT ON MANAGEMENT CONTROLS
As part of our review, we gained an understanding of the University’s management
control structure, as well as its policies, procedures, and practices applicable to the scope
of the audit. We identified applicable significant controls related to student enrollment
and definition of an academic year. To determine the level of control risk, we initially
tested disbursements to 55 Pell and 117 loan recipients. Subsequently, we decided to
compare Pell and loan transactions for all students in the SGAS programs.

Due to inherent limitations, a study and evaluation made for the limited purpose stated
above would not necessarily disclose all material weaknesses in the management
controls. However, we identified a significant management control weakness over the
University’s ability to administer the Title IV programs related to its SGAS programs.
This weakness consists of inadequate control over the amount of time spent in instruction
that violated the requirements contained in the HEA and the regulations. The Audit
Result section of this report fully discusses this weakness and its effects.




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