oversight

Audit of the Administration of the Student Financial Assistance Programs by Aakers Business College (College) during the period October 1, 1998, through September 30, 1999.

Published by the Department of Education, Office of Inspector General on 2002-07-23.

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

                                       UNITED STATES DEPARTMENT OF EDUCATION 

                                            OFFICE OF INSPECTOR GENERAL 

                                                                 REGION V 

                                                         III NORTH CANAL. SUITE 940 

                                                           CHICAGO. ILLINOIS 60606 


                                                                FAX: (312) 353-0244
     Audit                                                                                                                                Investigation
(312) 886-6503                                                                                                                           (312) 353-7891
                                                               JUL 232002 

                                                                                                       CONTROL NUMBER
                                                                                                        ED-OIG/A05-B0037



             Kristi Waite, President
             Professor Valley Educational Services, LLC
             d/b/a Aakers Business College
             1700 W. Highway 36, Suite 830
             Roseville, MN 55113

             Dear Ms. Waite:

             This Final Audit Report presents the results of our audit of the administration of the
             student financial assistance programs by Aakers Business College (College) during the
             period October 1, 1998, through September 30, 1999. Our objective was to determine
             whether the College administered these programs in accordance with the law and selected
             regulations applicable to the programs authorized by Title IV of the Higher Education
             Act of 1965, as amended (HEA).

             A draft of this report was provided to the College. In its response, the College generally
             concurred with all of our findings and recommendations. Because the College provided
             documentation that it has taken action based on our draft report recommendations, we
             made revisions to our report: we removed two of our draft recommendations (previously
             numbered 1.2 and 3.1) and modified four others (previously numbered 1.1, 1.3, 1.4, and
             2.1). We summarize the College's response after each finding in this final audit report,
             and a copy ofthe College's response, without its attachments, is provided as an
             attachment to this report.

                                                         AUDIT RESULTS

             During the period October 1, 1998, through September 30, 1999, the College generally
             administered the Title IV, HEA programs in accordance with the law and selected
             program regulations. However, we identified instances in which the College did not
             comply with the requirements related to (1) calculating refunds; (2) calculating the
             percentage of revenue derived from Title IV, HEA program funds; and (3) determining
             student enrollment.




                   Our mission Is to promote the efficiency, effectiveness, and integrity of the Department's programs and operations.
Final Audit Report 	                                                 ED-OIG/A05-B0037


Finding No. 1 The College Needs to Calculate Refunds Accurately

The College did not calculate refunds accurately for students who withdrew. In addition,
the College incorrectly applied its registration fee under the State/Institutional refund
policy. The College’s registration fee is a $60 fee that must accompany a student's
application for enrollment. If the student is not accepted for enrollment, the registration
fee is refunded. In calculating the amount earned, the College should have pro-rated the
registration fee; instead the College included the whole registration fee amount as earned.

Under the institutional refund requirements in Section 484B(a) of the HEA, as effective
before the Higher Education Amendments of 1998 and during our audit period—

       Each institution of higher education participating in a program under this
       title shall have in effect a fair and equitable refund policy under which the
       institution refunds unearned tuition, fees, room and board, and other
       charges to a student who received grant or loan assistance under this title,
       or whose parent received a loan . . . on behalf of the student, if the
       student—
                (1) does not register for the period of attendance for which the
       assistance was intended; or
                (2) withdraws or otherwise fails to complete the period of

       enrollment for which the assistance was provided. 


This HEA requirement was reflected in federal regulations, effective during our audit
period, at 34 C.F.R. § 668.22(a) (1998). In addition, an institution was required to
determine the refund calculation method under 34 C.F.R. § 668.22(b) (1998).

The College’s records showed 65 students withdrew from October 1, 1998, through
September 30, 1999. Of the 65 students who withdrew, the College was required to make
refund calculations for 24 Title IV, HEA recipients. We also reviewed 5 of the College’s
refund calculations for Title IV, HEA recipients who withdrew after September 30, 1999.

The College inaccurately calculated 8 of the 29 refunds:

•	     Four of its calculations provided insufficient refunds, totaling $1,747 less than the
       properly calculated amount; and

•	     Four of its calculations provided excessive refunds, totaling $385 more than the
       properly calculated amount.

The College lacked procedures to ensure that refunds were calculated correctly. The
College’s refund policy did not cover situations in which a student dropped one class and
later withdrew from school entirely. When calculating refunds, the College did not
consider the tuition adjustment it made when the student dropped the one class. In
addition, College officials lacked sufficient understanding of the application of the
registration fee under the State/Institutional refund policy.


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Final Audit Report 	                                                 ED-OIG/A05-B0037


Auditee’s Comments

In response to our draft audit report, the College recalculated 144 refunds it originally
calculated during the period October 1, 1999, through September 30, 2000. The College
also provided evidence showing that it paid $3,135 to lenders and $153 to the Department
of Education for refunds that it calculated incorrectly from October 1, 1998, through
September 30, 2000.

OIG’s Response

To ensure that the College calculated these refunds correctly, we reviewed 17 of the 144
calculations and relevant supporting documentation. We noted one refund calculation
error resulting in an insufficient Pell refund of $333. Due to the immateriality of the
error, we concluded that the College generally recalculated the refunds correctly.

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid1 require the
College to—

1.1 	 Repay $333 to the Department of Education for the Pell refund that it calculated
      incorrectly.

1.2 	 Review all refund calculations it made from the purchase of the school in March
      1998 through September 30, 1998, that involve situations where students first
      withdrew from a portion of their classes and then later withdrew from all their
      classes.

1.3 	 Provide the results of its review to Federal Student Aid, along with copies of
      supporting documents, including the refund computation, students' ledgers and
      attendance records.


Finding No. 2 	 The College Needs to Calculate Properly the Percentage of its
                Revenue Derived from Title IV, HEA Program Funds

The College did not calculate the amount of revenue derived from Title IV, HEA
program funds in compliance with regulatory criteria, because the College and its
Independent Public Accountant lacked sufficient understanding of the rules for
calculating the percentage.

The “90 Percent Rule,” as effective during our audit period, is included in Section
102(b)(1)(F) of the HEA.2 It states that, in order to participate in Title IV programs, a



1
    Student Financial Assistance became Federal Student Aid on March 6, 2002.


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Final Audit Report 	                                                 ED-OIG/A05-B0037

proprietary institution must have “at least 10 percent of [its] revenues from sources that
are not derived from funds provided under title IV, as determined in accordance with
regulations prescribed by the Secretary.”

Federal regulations for the 90 Percent Rule, as effective during our audit period, are
included in 34 C.F.R. § 600.5. Among other requirements, the federal regulations state—

•	      “[T]he title IV, HEA program funds included in the numerator and the revenue
        included in the denominator are the amount of title IV, HEA program funds and
        revenues received by the institution during the institution's last complete fiscal
        year . . . .” 34 C.F.R. § 600.5(d)(2)(i) (1998).

•	      “The amount charged for books, supplies, and equipment is not included in the
        numerator or the denominator unless the amount is included in tuition, fees, or
        other institutional charges . . . .” 34 C.F.R. § 600.5(d)(2)(iv) (1998).

The College's calculation under the 90 Percent Rule and the percentage reported in its
audited financial statements for the fiscal year ended September 30, 1999, did not reflect
accurately the percentage of its revenue derived from Title IV, HEA program funds. The
audited financial statements reported that the College derived 82 percent of its revenue
from Title IV, HEA program funds. Our review disclosed that the College's calculation
incorrectly included funds passed through to students, funds maintained as credit
balances, and non-institutional charges of books and supplies. We did not determine an
exact percentage, but our review did disclose that, though the College’s calculation was
incorrect, the College did meet the 90 Percent Rule criterion for participation in the Title
IV, HEA programs.

Auditee’s Comments

The College indicated that it will calculate the 90 Percent Rule percentage according to
34 C.F.R. § 600.5(d).

Recommendation

We recommend that the Chief Operating Officer for Federal Student Aid require the
College to—

2.1 	   Provide evidence that it has established and implemented policies and procedures
        to ensure it calculates the 90 Percent Rule percentage properly.




2
  The Higher Education Amendments of 1998 (Pub. L. 105-244), enacted on October 7,
1998, changed the threshold percentage from 85 to 90. Federal regulations implementing
the new threshold were not effective until July 1, 2000.


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Final Audit Report 	                                                 ED-OIG/A05-B0037


                                OTHER MATTERS

The College Determined One Student's Enrollment Status Improperly

The College did not determine one student's enrollment status properly. Our review of
the records for 25 Title IV, HEA recipients from a universe of 178 Title IV, HEA
recipients during the period October 1, 1998, through September 30, 1999, disclosed 1
instance in which the College classified the student as enrolled in 3 classes. However,
the student was enrolled in only 2 classes.

Pursuant to 34 C.F.R. § 690.63(b)(1), one factor used to determine a student’s Federal
Pell Grant amount for a payment period is the student’s enrollment status for the term.
Federal regulations also state—

•	     “The amount of a student’s Pell Grant for an academic year is based upon the
       payment and disbursement schedules published by the Secretary for each award
       year.” 34 C.F.R. § 690.62(a).

•	     “The institution is liable for any overpayment if the overpayment occurred
       because the institution failed to follow the procedures set forth in this part.” 34
       C.F.R. § 690.79(a)(2).

Based on its incorrect determination of enrollment in three classes (three-quarter time),
the College awarded the student a Federal Pell Grant of $719. Because the student was
enrolled in only two classes (half time), using the Federal Pell Grant payment and
disbursement schedules published for the 1999-2000 award year, the College should have
awarded the student only $479. As a result, the College disbursed an overpayment to the
student of $240 ($719 - $479 = $240). In its response to our draft audit report, the
College indicated it had returned $240 to the Department of Education and $505 to the
student’s lender. We confirmed that the College made the payments.


                                   BACKGROUND
During the audit period, the College offered Associate of Applied Science Degrees in (1)
Accounting, (2) Business Management, (3) Executive Administrative Assistant (Medical
and Legal), and (4) Travel Business Management. The College also offered Managerial
Accounting, Secretarial, Legal Office Specialist, and Medical Office Specialist diplomas,
and an Accounting certificate. During the period October 1, 1998, through September
30, 1999, the College disbursed Title IV, HEA funds to 178 students. The Title IV, HEA
funds totaled $808,951, consisting of Federal Supplemental Educational Opportunity
Grants ($12,325), Federal Family Education Loans ($633,776), Federal Direct Loans
($5,805), and Federal Pell Grants ($157,045). This period was the College’s first full
fiscal year under new ownership. Since the change in ownership, the College's
participation in the Title IV, HEA programs has been growing steadily.



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Final Audit Report 	                                                 ED-OIG/A05-B0037

The HEA authorizes these programs, and they are governed by regulations contained in
34 C.F.R. Parts 676, 682, 685, and 690, respectively. In addition, these programs are
subject to the provisions contained in the Student Assistance General Provisions
regulations (34 C.F.R. Part 668). The College also must comply with the Institutional
Eligibility regulations (34 C.F.R. Part 600) to participate in these programs.


               OBJECTIVE, SCOPE, AND METHODOLOGY
The objective of our audit was to determine whether the College administered the Title
IV, HEA programs in accordance with the law and selected program regulations during
the period October 1, 1998, through September 30, 1999. Specifically, we evaluated
(1) institutional and program eligibility, (2) cash management and financial
responsibility, and (3) selected administrative and compliance requirements. The
selected administrative and compliance requirements included student eligibility, award
calculations and disbursements, loan disbursements, and refunds and overpayments.

To accomplish our audit objective, we—

1. 	 Reviewed the College's written polices and procedures, course catalog, accounting
     records, student financial assistance and academic files, student ledgers and
     attendance records, and bank records;

2. 	 Reviewed College payroll records and personnel files for admission representatives;

3. 	 Reviewed the financial statement and student financial assistance audit reports for the
     years ended September 30, 1999 and 2000, and the OIG quality control work papers
     of the audit report for the year ended September 30, 1999;

4. 	 Reviewed Federal Student Aid, State, and accrediting agency documents;

5. 	 Reviewed Department of Education data;

6. 	 Reviewed 25 student files randomly selected from a universe of 178 Title IV, HEA
     recipients who attended the College during the audit period;3

7. 	 Reviewed refund records for 62 students of the 65 who withdrew during the audit
     period; and

8. 	 Interviewed College officials, the College’s Independent Public Accountant, and a
     Federal Student Aid official.




3
 Some Title IV, HEA recipients attended beyond September 30, 1999. In such cases, we
continued our review, which included 5 refund calculations.


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Final Audit Report                                                   ED-OIG/A05-B0037

In addition, we visited the College's System Office in Roseville, Minnesota, to review
cancelled checks. We also visited the College's Independent Public Accountant in St.
Paul, Minnesota, to review the work papers related to the 90 Percent Rule calculation.

We also relied, in part, on computer-processed data contained in the College's
“Consolidated Database.” We assessed the reliability of the data in this database by
comparing the College's Federal Pell Grants and Federal Family Education Loans data to
the Department of Education's data. Based on the work performed, we concluded that the
data were sufficiently reliable to be used in meeting the audit's objective.

We conducted our field work at the College's location in Fargo, North Dakota, from
September 24, 2001, through December 21, 2001. We also conducted work at the
College's Independent Public Accountant's office on January 10, 2002, and at the
College's System Office on January 16, 2002. We discussed the results of our audit with
College officials on December 21, 2001, and January 14, 2002. Because our site visit to
the College’s System Office did not alter our audit results, we did not hold another
discussion with College officials.

Finally, we reviewed evidence supporting the College’s return of Title IV, HEA
program funds and 17 of 144 refund computations and supporting documentation the
College submitted in response to our draft audit report. We reviewed the additional
documentation during May and June 2002.

Our audit was performed in accordance with government auditing standards appropriate
to the scope of the review described above.


             STATEMENT ON MANAGEMENT CONTROLS
As part of our audit, we did not assess the adequacy of the College's management control
structure applicable to its Title IV, HEA programs to determine the nature, extent and
timing of our testing. Instead, we relied on substantive testing of financial aid, academic,
and accounting records related to (1) 25 Title IV, HEA recipients randomly selected from
a population of 178 and (2) 57 of 65 students who withdrew from the College during the
audit period. Our testing disclosed instances of non-compliance with federal regulations
that led us to believe weaknesses existed in the College's controls over the Title IV, HEA
programs. These instances are related to the calculation of refunds and the calculation of
the 90 Percent Rule. These weaknesses and their effects are fully discussed in the
AUDIT RESULTS section of this report.




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      Final Audit Report                                                 ED-OIG/A05-B0037


                              ADMINISTRATIVE MATTERS
      Statements that managerial practices need improvements, as well as other conclusions
      and recommendations in this report, represent the opinions of the Office of Inspector
      General. Determination of corrective action to be taken will be made by the appropriate
      Department of Education officials.
II'


      If you have any additional comments or information that you believe may have a bearing
      on the resolution of this audit, you should send them directly to the following Department
      of Education official, who will consider them before taking final Departmental action on
      the audit:

                            Mr. Greg Woods, Chief Operating Officer
                            Federal Student Aid
                            Union Center Plaza Building, Rm. 11201
                            830 1st Street, NE
                            Washington, DC 20202

      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 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.

      We wish to thank the College's Financial Aid Director for her help in finalizing this audit
      report. Should you have any questions concerning this report, please contact me at (312)
      886-6503. Please refer to the control number in all correspondence relating to this report.




                                                    Regional Inspector General
                                                    for Audit




                                                   8

Final Audit Report                                                                                        ED-OIG/A05-B0037
                                                                                                         ATTACHMENT 1 of 2




                AAKERS BUSINESS COLLEGE
  4012 19th Ave S.W.
  Fargo, ND 58 103
  www.aakers.com



         United States I)epartment of Education
                                                       e                                                Phone: 701 -277-3889
                                                                                                           Fax: 701-277-5604
                                                                                                    Toll Free: 1-8()().817-0009




         Office of Inspector General
         I II North Canal, Suite 940
         Chicago, lL 6()6()6.7204

         Re: April 5, 2002 Draft Audit Report

         Dear Mr. Dowd:

         Please accept the following response to the Draft Audit Report, complete with supporting documentation.

          Flnd in a: No. I " Th e Co llege NHds to Calculate Rtfunds Corn d ly"

                  "'=Aakers Business College agrees that then: wen: minor computation errors in tluu n:fuOOs
                           for the audit period requiring a total compensation of51702.30 to FFEL lenders. A
                           fourth file involved In CITOT in PfO-niition of the n:gistration fee, resulting in I n:fund of
                           54510 the Federal Pel! Gnnt Program. The College will, at the request and guidan<:e of
                           the federal audit process, pay these n:funds without hesitation.

                  Rt'Commralial/onl
                            L1      Pay 51702 10 lenders IIld 545 to the Depanment of Education for n:funds that
                                    it calculated incorrectly.
                                            Allachedjilld a detailed sprtladsheellabeled "Requirtld Refunds From
                                            Detail Review" alld supporting documentation dirtlCtly fol/awing.
                            1.2     Develop and implement procedures to ensun: that it calculated n:funds correctly.
                                            TIle Financial Aid Office has added a FA A,ui$tant sillce the audil
                                            ~riod. andfeels Ihal il h<l.J sufficienl policies and procedu~ ill place
                                            10 sali$fy Ihi$ rtCOmmendat,'on.
                            1.3     Review all refund calculations it made since the pun;1wc ofthe school through
                                    September 30, 1998, and all refund calculations it made from O<:tobcr I, 1999
                                    Wltil implemcntation ... ofRlT4 on October I, 2000.
                                              Refulld calculaliafU and all payments to eligible studenll [rom
                                             purchase to September )0. J998 were reviewed inlt nsiwly by Region
                                              VIII Officio/s. Due 10 Ihe factlhallhe College wa.s ollihe
                                              rtlimbursement $)Istem ofpaymtnl allhaltime. Ihe College iJ confidenl
                                              lhal refulld Clllcu/alio/lS artl accurale for Ihe period prior 10 the federal
                                              Ilut/il.
                            1.4      Provide the results of its review to Federal Student Aid, along with copies of
                                     of supponing documcnta. including the lIudents' ledgers and allendance rcwrds.
                                              Ple<l.Jc rcfcr to lh~·art,,~~ed ~p",ad..hccl labclcd "College Reviewed
                                              Refunds"llnd supporting documenlal/on. For )'Clurconvcnience. "II
                                              sllpponing documenlalion h/U been bound and separaled inlO d"yand
                                              evening sludenls.
Final Audit Report                                                                                   ED-OIG/A05-B0037
                                                                                                    ATTACHMENT 2of2




       FIDdIDa No.2 	"'I'be CoUege Needs to Clkulate Properly the Percentage or Its Revenue Derived Fnm
                      Title IV, IlEA Program Fuads"

               IlsRRDu.
                         In acc:ordance.with rule 34 CPR 6OO.5(d)(2}(i)(1998). the institution calculates its
                         percentage as: HBA funds received divided by total College revenue in the denominator
                         as determined on a cash basis. For fiscal 2001. that percentage comprised SO'll of total
                         aUowable cash received of 52,287.000. The cOllege will continue to monitor this
                         calculation to ensure compliance with the aforementioned regulation.

       FIDdIDa No. 3 "The College Detel'lllllled One Student's EDroUment Status Improperly"

                BBswY£
                         The College agrees that one student was overpaid in Federal Pell in the amount ofS240.

                RecO!7!l!!ll1!datin
                         3.1 Return to the Department of Education the Federal Pell Grant oVeqJayrnent ofS240.
                                    Pleose find cutached proofofpayment of the PeU refund. AdditioNllly. the
                                    College#UU rcfwuJed $505 10 the lender to repay for an overcharge in tuition on
                                    this some student.

        Aakers Business College recognizes the extreme importance in managing federal funds and apologizes for
        errors made in the aforementioned filesffindings. The CoUege respectfully thanks the auditor. Tom
        Sample. for his guidance and constructive advice to Improve existing policies and procedures and also
        tbaub the Depsrtmenl of Education for the opportunity to verify that our administrative practices are sound
        and capable. If you have any further questions or concerns, please contact us. Thank you.

        Respectfully submitted this 22- day of April 2002.



        Kristi Waite, President
        Professor VaUey Educational Services. u.c
        dIbIa Aakers Business College