oversight

Audit of the Administration of Selected Aspects of the Student Financial Assistance Programs by Globe College (College) during the period January 1, 1999, through December 31, 1999.

Published by the Department of Education, Office of Inspector General on 2002-08-07.

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

                                   UNITED STATES DEPARTMENT OF EDUCATION 

                                        OFFICE OF INSPECTOR GENERAL 

                                                               REGION V 

                                                       111 NORTH CANAL, SUITE 940 

                                                         CHICAGO, ILLINOIS 60606 


                                                                                                                                                  ,,'I.;
     Audit                                                    FAX: (312) 353-0244                                                    .' Investigatiqn
(312) 886-6503                                                                                                                       '\31~) 353-7891



                                                                                                          CONTROL NUMBER
                                                                                                           ED-OIG/A05-B0040
           Mr. Terry Myhre, President
           Globe College
           7166 10th Street North
           Oakdale, Minnesota 55128                                                                       AUG           7 2002
           Dear Mr. Myhre:

           This Final Audit Report presents the results of our audit of the administration of
           selected aspects of the student financial assistance programs by Globe College (College)
           during the period January 1, 1999, through December 31, 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).

            We provided a draft of this report to the College. In its response, the College addressed
            all the recommendations, but said it disagreed with the findings. Based on the response,
            we made revisions to the report: we removed recommendations 1.1, 1.3, and 1.4; we
            changed recommendation 1.2 to 1.1 and expanded it; and we added a new
            recommendation 1.2. We summarize the College's response after each finding in this
            final report, and a copy of the College's response, without its enclosures, is provided as
            an attachment to this report.

                                                         AUDIT RESULTS
            During the period January 1, 1999, through December 31, 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 accurately and making
            them timely, and (2) calculating the percentage of revenue derived from Title IV, HEA
            program funds.

            Finding No.1 	 The College Needs to Calculate Refunds Accurately and Make
                           Refunds Timely

            The College did not calculate refunds accurately for students who withdrew. In addition,
            the College did not always make refunds timely.




                    Our mission is to ensure equal access to educetion and to promote educatlonalexceflence throughout the Nation.
Final Audit Report 	                                                     ED-OIG/A05-B0040

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), and an institution was required to determine the
refund calculation method under 34 C.F.R. § 668.22(b) (1998). In addition, among other
requirements, the federal regulations state—

• 	 “If the student drops out of the institution without notifying the institution (does not
    withdraw officially), [the student’s withdrawal date is] the last recorded date of class
    attendance by the student, as documented by the institution.”
    34 C.F.R. § 668.22(j)(1)(B) (1998).

• 	 “An institution shall pay a refund that is due to a student . . . [i]f a student drops out,
    within 30 days of the earliest of the—
           (A) Date on which the institution determines that the student dropped out;
           (B) Expiration of the academic term in which the student withdrew; or
           (C) Expiration of the period of enrollment for which the student has been
           charged . . . .” 34 C.F.R. § 668.22(j)(4)(ii) (1998).

The College’s records showed 195 students withdrew from the College from January 1,
1999, through December 31, 1999. We reviewed the refund calculations for 15 students
randomly selected from this universe of 195 students. We also reviewed the refund
calculations for 5 students of the 27 students randomly selected for file review, 3 of
whom withdrew after December 31, 1999.

The College incorrectly calculated 13 of the 20 refunds:

• 	 Nine of its calculations provided insufficient refunds, totaling $3,561 less than the
    properly calculated amount; and

• 	 Four of its calculations provided excessive refunds, totaling $1,247 more than the
    properly calculated amount.




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Final Audit Report 	                                                   ED-OIG/A05-B0040

In April 1999, the College changed its method of calculating refunds. Instead of using
the last date of attendance to identify the portion of the period of enrollment for which a
refund was owed, the College began to use the date it determined the student withdrew.
The nine insufficient refunds occurred as a result of this change in methodology. In July
2000, the College changed back to using the last date of attendance.

The College did not deposit refund checks for four students to the appropriate program
account within 30 days of the date it determined the students withdrew. The four
deposits were made 33, 36, 45, and 56 days after the withdrawal determination date.

After we provided a draft of this report to the College, the College informed us that it
calculated and paid the refunds owed to students for the period April 1999 through June
2000. The College provided copies of checks to support its payments, but it did not
provide documentation that the checks had cleared the bank.

Recommendations

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

1.1 	    Develop and implement procedures to ensure that it calculates refunds accurately
         and pays refunds timely and, in its next student financial assistance audit, have the
         independent public accountant attest that the procedures are adequate to ensure
         that refunds will be calculated accurately and paid timely.

1.2 	    Provide assurance that the refund checks it issued in response to the draft audit
         report cleared the bank.

Auditee Comments

The College did not agree with the finding, but it did not provide a reason for its
disagreement. The College completed refund calculations for the period April 1999
through June 2000 and determined that it needed to pay refunds totaling $61,466. It
provided documentation to support the calculations, including detailed attendance records
and ledger cards. The College also provided copies of checks that had not yet been
cancelled to support its payment of the refunds. In addition, the College stated that it
developed and implemented procedures for calculating refunds under the "Return to Title
IV formula," but it did not provide a copy of the procedures.

OIG Response

We have modified our draft report recommendations to reflect the College's review of
refund calculations for the period April 1999 through June 2000.



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


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Final Audit Report 	                                                  ED-OIG/A05-B0040


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

The College’s independent public accountant did not calculate the amount of revenue
derived from Title IV, HEA program funds in compliance with regulatory criteria,
because he lacked sufficient understanding of the rules for calculating the percentage.

Though the College is responsible for the calculation of this amount, the College’s
independent public accountant performed the calculation. We issued an audit close-out
letter in November 1998, in which we recommended that the College perform the then 85
Percent Rule calculation itself and have its independent public accountant attest to the
accuracy of the calculation. Our audit finding confirms that the College still needs to
implement this prior recommendation.

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, HEA
programs, a 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 independent public accountant’s calculation under the 90 Percent Rule and the
percentage reported in the College’s audited financial statements for the fiscal year ended
December 31, 1999, did not reflect accurately the percentage of its revenue derived from
Title IV, HEA program funds. According to the College’s Director, the College
considered books, supplies, and equipment as non-institutional charges until August
2001, when a consultant advised it to treat those items as institutional charges. The
independent public accountant’s calculation incorrectly included funds for books and
supplies.




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-B0040

Our review determined that, though the calculation was incorrect, the College met the 90
Percent Rule criterion for participation in the Title IV, HEA programs. The College
reported that 82.73 percent of its revenue was derived from Title IV, HEA program
funds, and our calculation determined that 86.06 percent of the College's revenue was
derived from Title IV, HEA funds.

Recommendation

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

2.1 	   Establish and implement policies and procedures to ensure it calculates the 90
        Percent Rule percentage properly.

Auditee Comments

The College agreed that it was in compliance with the 90 Percent Rule. It did not agree
with our calculation, but it did not provide any reason for its disagreement or any
documentation to support that our calculation was incorrect. The College stated that it
has policies and procedures that are in compliance with the 90 Percent Rule, but it did not
provide a copy.

OIG Response
Because the College did not provide a copy of its policies and procedures related to the
90 Percent Rule, we have no assurance that those policies and procedures are adequate to
ensure the College calculates the 90 Percent Rule percentage properly. Therefore, we
have not changed our finding or recommendation.

                                  BACKGROUND
During the audit period, the College offered associate’s degrees and diplomas in (1)
accounting, (2) business administration, (3) health and exercise sciences, (4) medical and
veterinary assistant, (5) multimedia/computer graphics, and (6) network support
specialist. During the period January 1, 1999, through December 31, 1999, the College
disbursed Title IV, HEA funds to 892 students. The Title IV, HEA funds totaled
$3,688,109, consisting of FSEOG Grants ($47,143), Direct Loans ($3,084,876), and
Federal Pell Grants ($556,090).

The HEA authorizes these programs, and they are governed by regulations contained in
34 C.F.R. Parts 676, 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.




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Final Audit Report 	                                                    ED-OIG/A05-B0040


               OBJECTIVE, SCOPE, AND METHODOLOGY 

The objective of our audit was to determine whether the College administered selected
aspects of the Title IV, HEA programs in accordance with the law and selected program
regulations during the period January 1, 1999, through December 31, 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 policies 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 December 31, 1999 and 2000, and the OIG quality control work papers
     of the audit report for the year ended December 31, 1999;

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

5. 	 Reviewed Department of Education data;

6. 	 Reviewed 27 student files randomly selected from a universe of 892 Title IV, HEA
     recipients who attended the College during the audit period3;

7. 	 Reviewed refund records for 20 students who withdrew during the audit period4; and

8. 	 Interviewed College officials and Federal Student Aid officials.

We also relied, in part, on computer-processed data contained in the College’s CLASS
student data system. We assessed the reliability of the data in the data system by
comparing the College’s FSEOG, Direct Loan, and Federal Pell Grant data to source
documents and Department of Education data. Based on the work performed, we
concluded that the data were sufficiently reliable to be used in meeting the audit’s
objective.


3
 The results of the sampling may not be representative of the entire population.
4
  The 20 students reviewed for refunds included 15 students randomly selected from the
195 students who withdrew from January 1, 1999, through December 31, 1999, and 5
students from the 27 students randomly selected for file review (see item #6), who
withdrew from January 1, 1999, through March 24, 2000. The results of the sampling
may not be representative of the entire population.


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Final Audit Report                                                    ED-OIG/A05-B0040

We conducted our fieldwork at the College’s location in Oakdale, Minnesota, from
October 1, 2001, through February 22, 2002. We discussed the results of our audit with
College officials on February 22, 2002.

Finally, in July 2002, we reviewed the College's response to the draft report and the
voluminous documentation it submitted to support 184 refund calculations.

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) 27 Title IV, HEA recipients randomly selected from
a population of 892, and (2) 15 students randomly selected from the 195 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 and payment of refunds and the calculation of the 90 Percent Rule. These
weaknesses and their effects are discussed in the AUDIT RESULTS section of this
report.




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Final Audit Report                                                  ED-OIG/A05~B0040




                        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. Determinations of corrective action to be taken will be made by the appropriate
Department of Education officials.


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 Education
Department official, who will consider them before taking final Departmental action on
the audit.

               Mr. Greg Woods, ChiefOp'erating Officer
               Federal Student Aid
               U.S. Department of Education
               Union Center Plaza Building, Room 112G 1
               83Q First Street, N.E.
               Washington, D.C. 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 ofInformati,onAct (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.




                                             Regional Inspector General
                                             for Audit


 Attachment




                                             8
Final Audit Report                                                                       ED-OIG/A05-B0040
                                                                                     ATTACHMENT Page 1 of 2



                                          GLOBE COLLEGE


            Jul y 10, 2002



            By Facsimile and US Mail                                                        •
            Mr. Richard 1. Dowd
            Regional Inspector General
            United States Department of Education
            Office of Inspector General, Region V
            III North Canal Street, Suite 940
                      1




                                                               "''''1,1." Refunds Accurately and Make




                   review, please see recommendation 1.3.

            1.2    In response to th e recommendations by the U.S. Depanment of Education Office
                   of the Inspector General, Globe College has developed and implemented policies
                   and procedures for calculating refunds. These procedures now provide for the
                   calculation of the return of funds under the Return to Title IV fonnula.

            1.3    Globe College completed the file review of all of th e refund calculations from
                   April 1999 through June 2000. In the interest of closing this finding, all refunds
                   have been made and copies of the refund checks are included with this response.

            1.4    As requested, included with this response, is the supporting documentation of the
                   results of the file revi ew.




                          Oakd~   Ctllttr • 7166 lOth Stl"Kt North· Qakdllle, Minnesota !!128-S408
                                         PI"...e: (UI) 130-5100 • Fax: (01) 130-5151
Final Audit Report                                                               ED-OIG/A05-B0040
                                                                             ATTACHMENT Page 2 of2




           Finding No.2 	         The College Needs to Calculate Properly the Percentage of Its
                                  Revenue Derived from Title IV. HEA Program Funds.
                                                                                                         1
            2.1 	   Globe College does agree with the OIG Report that we are in compliance with the
                    90 Percent Rule criterion for participation in the Title IV, HEA programs,
                    although we do not agree with the auditor's calculation of the pereentage. In
                    addition, Globe College has policies and procedures that are in compliance with
                    90110.

           In an effort to comply·with the audit of Globe College by the Office of Inspector General,
           Globe College has addressed all of the recommendations. Although Globe College does
           not agree with the findings, in an effort to fully cooperate and close this audit, we have
           answered all of the findings in the draft report. Accordingly, we believe these findings to
           be closed and should not appear in the final report.

           If you require any further information regarding our response to the Draft Audit Report,
           please do not hesitate to contact me.




            Enclosures