oversight

Sanford-Brown Institute's (SBI) Compliance with the 90-10 Rule for the 2003 Fiscal Year.

Published by the Department of Education, Office of Inspector General on 2006-01-18.

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

                       UNITED STATES DEPARTMENT OF EDUCATION 

                              OFFICE OF INSPECTOR GENERAL 

                                               Chicago/Kansas City Audit Region 


                       I I IN. Canal St. Ste. 940                           8930 Ward Parkway, Ste 2401
                       Chicago, IL 60606-7297                               Kansas City, MO 64114-3302
                       Phone (312) 886-6503                                 Phone (816) 268-0500
                       Fax (312) 353-0244                                   Fax (816) 823-1398




                                                                                  January 18,2006


                                                                                 Control Number ED~OIG/A05F0017


John M. Larson
Chairman of the Board, President, and
Chief Executive Officer
Career Education Corporation
2895 Greenspoint Parkway, Suite 600
Hoffinan Estates, IL 60195

Dear Mr. Larson:

This Final Audit Report, titled Sanford-Brown Institute - Atlanta's (SBI) Compliance with the
90-10 Rule for the 2003 Fiscal Year, presents the results of our audit. The objective of our audit
was to determine whether SBI complied with the 90-10 Rule, Section 102(b)(I)(F) of the Higher
Education Act of 1965, as amended (HEA), and had sufficient, reliable accounting records to
support the calculation for the 2003 fiscal year (January 1 through December 31, 2003). The 90­
10 Rule states that, to be eligible for Title IV, HEA program participation, a proprietary
institution may derive no more than 90 percent of its revenue from the Title IV, HEA programs.

For the 2003 fiscal year, SBI complied with the 90-10 Rule by not deriving more than 90 percent
of its revenue from the Title IV, HEA programs. However, Career Education Corporation
(CEC), the parent company of SBL did not have sufficient, reliable accounting records to support
a precise 90-10 Rule calculation and did not calculate the percentage of revenue SBI derived
from Title IV, HEA program sources in accordance with the regulations. As a result, CEC
reported inaccurate 90-10 Rule information in its 2003 financial statements. CEC reported SBI
derived 88 percent of its revenue from Title IV, HEA program sources. However, our
recalculation showed SBI derived about 86.6 percent of its revenue from Title IV, HEA program
sources.

In response to the draft of this report, CEC concurred with our finding and recommendations
with the exception of item 2 in the finding. CEC disagreed with item 2, citing a 1999 ED Policy
Interpretation and Guidance publication as its primary support for its position regarding
classification of institutional charges. CEC's response also outlined its planned corrective




           Our mission is promote the efficiency, effectiveness, and integrity ofthe Department's programs and operations.
Final Audit Report
A05F0017                                                                                              Page 2 of 8


actions. The corrective actions included training, enhancing its computer system, and
strengthening procedures for preparing the 90-10 Rule calculation.

We summarized CEC's comments after the recommendations in this report and included CEC's
comments l on the draft report as an Attachment. After reviewing CEC's comments, we revised
and added to Recommendation 1.1.



                                            BACKGROUND 



SBI is a proprietary institution with a main campus in Atlanta, Georgia, and additional locations
in Florida, Maryland, New York, Ohio, Pennsylvania, and Texas. During the period January 1
through December 31,2003, SBI participated in the Federal Pell and Federal Family Education
Loan programs.

CEC purchased SBI in July 2003. CEC is located in Roffman Estates, Illinois, and is a publicly
traded company that owns and operates schools that provide private, for-profit, postsecondary
education. As of December 31, 2003, CEC owned and operated 78 schools with campuses in the
United States, Canada, the United Kingdom, France, and the United Arab Emirates. According
to CEC's financial statements, SBI derived 88 percent ($30,287,543) of its total revenues
($34,369,417) from Title IV, REA program sources for its fiscal year ending December 31,
2003.



                                           AUDIT RESULTS 



Finding 	 SBl's 90-10 Rule Calculation Was Not Prepared in Accordance with Federal
          Regulations

CEC did not calculate the percentage of revenue SBI derived from the Title IV, REA programs
for the 2003 fiscal year in accordance with federal regulations. In calculating SBI's percentage,
CEC:

1. 	 Included revenue from a location that was not eligible to receive Title IV, REA funds during
     the 2003 fiscal year in the denominator of the calculation;

2. 	 Included revenue from all charges, including non-institutional charges, in the calculation;



I With its comments, CEC provided four exhibits. The Attachment only includes Exhibit 4. We are not including
Exhibits 1,2, and 3 because Exhibits 1 and 2 contain proprietary information, and Exhibit 3 contains information
that is available via the u.s. Department of Education's web site.
Final Audit Report
A05F0017                                                                                       Page 3 of 8


3. 	 Misclassified Title IV, REA program revenue/refund transactions as non-Title IV, REA
     program revenue; and

4. 	 Did not apply Title IV, REA program funds before applying non-Title IV, REA program
     funds to tuition and fees (Title IV, REA program funds were paid to students as a return of
     credit balances and non-Title IV, REA program funds were applied to tuition and fees).

Section 102(b)(1)(F) of the REA provides that a proprietary institution must have "at least 10
percent of the school's revenues from sources that are not derived from funds provided under
title IV, as determined in accordance with regulations prescribed by the Secretary." Pursuant to
34 C.F.R. § 600.5(a)(8),2 to be eligible to participate in the Title IV, REA programs, a
proprietary institution must have "no more than 90 percent of its revenues derived from title IV,
REA program funds."

The following formula for calculating the percentage for an institution's latest complete fiscal
year is found at 34 C.F.R. § 600.5(d)(I):

             Title IV, REA program funds the institution used to satisfy its students'
                      tuition, fees, and other institutional charges to students.

              The sum of revenues including title IV, REA program funds generated by the
           institution from: tuition, fees, and other institutional charges for students enrolled
            in eligible programs as defined in 34 CFR [§] 668.8; and activities conducted by
             the institution, to the extent not included in tuition, fees, and other institutional
             charges, that are necessary for the education or training of its students who are
                                     enrolled in those eligible programs.

Pursuant to 34 C.F.R. § 600.5(e)(1)(iii) and (v), "[t]he institution may not include as title IV,
REA program funds in the numerator nor as revenue generated by the institution in the
denominator ... (iii) The amount of institutional funds it used to match title IV, REA program
funds; ... or (v) The amount charged for books, supplies, and equipment unless the institution
includes that amount as tuition, fees, or other institutional charges."

The regulation at 34 C.F.R. § 600.5(d)(2) provides that "[a]n institution must use the cash basis
of accounting when calculating the amount of title IV, REA program funds in the numerator and
the total amount of revenue generated by the institution in the denominator of the fraction ..."
According to 34 C.F.R. § 600.5(e)(2), "[i]n determining the amount of title IV, REA program
funds received by the institution under the cash basis of accounting ... the institution must
presume that any title IV, REA program funds disbursed or delivered to or on behalf of a student
will be used to pay the student's tuition, fees, or other institutional charges, regardless of whether
the institution credits those funds to the student's account or pays those funds directly to the
student, and therefore must include those funds in the numerator and denominator."



2   Unless otherwise specified, all regulatory citations are to the July 1,2002, volume.
Final Audit Report
A05F0017                                                                                   Page 4 of 8


Weaknesses in CEC's system of internal control caused CEC management to incorrectly
calculate the percentage of revenue SBI derived from Title IV, HEA program sources. CEC did
not have sufficient policies and procedures to exclude revenue from a location that was not
eligible to receive Title IV, HEA program funds during the 2003 fiscal year. CEC management
also chose to classify all charges posted to the students' accounts as institutional charges, citing a
January 7, 1999, Department of Education policy bulletin as its support for its position. In
addition, CEC management was not overly concerned about excluding revenue amounts, such as
revenue from non-institutional charges, it did not consider material to the financial statements.
CEC's Vice President of Government Relations informed us that extensive work would be
needed to show the exact percentage of revenue that SBI derived from Title IV, HEA program
sources during any fiscal year. CEC's Vice President of Government Relations also stated that
CEC's conversion to a new computer system and manual coding errors resulted in (1) Title IV,
HEA program funds not being applied to tuition and fees first and (2) the misclassification of the
revenue/refund transactions as non-Title IV, HEA program revenue and non-Title IV, HEA
program revenue transactions as Title IV, HEA program revenue.

As a result of improperly calculating the percentage of revenue SBI derived from Title IV, HEA
program sources, CEC reported inaccurate 90-10 Rule information for SBI in its 2003 financial
statements. CEC reported SBI derived 88 percent of its revenue from Title IV, HEA program
sources for the 2003 fiscal year. However, we estimate that the percentage of revenue SBI
derived from Title IV, HEA program sources was about 86.6 percent for the 2003 fiscal year.
CEC misclassified revenue and refund transactions involving Title IV, HEA program funds. The
misclassifications erroneously increased the numerator of the calculation by about $815,000,
giving the appearance that the percentage of revenue SBI derived from Title IV, HEA program
sources was about 1.4 percent higher than it really was. Also, the following three errors would
have understated the percentage of revenue SBI derived from Title IV, HEA program sources.

    1. 	 CEC erroneously included $6,807 of revenue from its Northloop (Texas) location in the
         denominator of the 90-10 Rule calculation even though the Northloop location was not
         eligible to receive Title IV, HEA program funds until February 2004.
    2. 	 CEC incorrectly included an estimated $160,015 of revenue from non-institutional
         charges in the denominator of the 90-10 Rule calculation.                .
    3. 	 CEC did not apply credit balances returned to students to Title IV, HEA program funds
         before applying them to non-Title IV, REA program funds. Doing so would have
         increased the amount of Title IV, HEA program funds included in the numerator. We
         estimate that approximately $165,000 should have been added to the numerator (total
         amount of Title IV, HEA program revenue).

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid require CEC to:

1.1 	 Finalize and implement policies and procedures that ensure it will calculate the percentage of
      revenue derived from the Title IV, HEA programs in strict compliance with the requirements
      set forth in 34 C.F.R. § 600.5, describe the training being developed, and explain how the
Final Audit Report
A05F0017                                                                                   Page 5 of 8


    training will help ensure CEC calculates a precise 90-10 Rule calculation in accordance with
    the regulations.

1.2 Require CEC to recalculate its 90-10 Rule percentage for SBI's 2004 fiscal year, report the
    percentage to FSA, and provide FSA with the revised calculation and the detail behind the
    revised calculation.

CEC's Comments

CEC concurred that it did not calculate SBI's 9011 0 Rule percentage in strict compliance with
the regulations. CEC agreed that it

    (1) improperly included revenue from a location that was not eligible to receive Title IV,
        HEAfunds during the 2003 fiscal year in the denominator of the calculation [item 1 in
        the finding];
    (2) misclassified Title IV, HEA program revenue/refund transactions as non-Title IV, HEA
        program revenue [item 3 in the finding];
    (3) did not apply certain Title IV, HEA program funds before applying non-Title IV, 

        program funds to tuition and fees [item 4 in the finding]. CEC included revised 

        procedures for preparing the 90-10 Rule calculation. 


However, CEC generally disagreed that it included revenue from non-institutional charges in
SBI's 90110 Rule calculation [item 2 in the finding]. CEC agreed that application fees for
students who did not start school ($37,795) should be excluded from the denominator of the
calculation but disagreed that revenue from application fees for students who did start school
($122,221) should be excluded. CEC cited a 1999 ED Policy Interpretation and Guidance
regarding calculating institutional refunds as its primary support for its position that an
institution is never compelled by federal law and regulations to classify a charge as non­
institutional if it wishes to classify the charge as institutional.

Corrective Action
As part of its response to the draft report, CEC said it is developing procedures and training to
ensure it calculates the percentage of revenue derived from Title IV, HEA programs in
compliance with the requirements in 34 C.F.R. § 600.5. CEC included revised procedures for
calculating the percentage with its response. The revised procedures include a step to review
certain Title IV transactions that appear to be in error to determine if they were properly
categorized and a step to make appropriate adjustments to the numerator and/or denominator of
the calculation. In addition, CEC said it is developing computer systems enhancements to
address coding issues and provide reasonable assurance that Title IV, HEA program funds are
applied to tuition and fees before non-Title IV stipends are paid to students as Title IV stipends.

OIG Response

CEC's assertion that the application fees for students who started school may be included as
revenue in the calculation is contrary to the 9011 0 Rule regulation. The regulat,ion is clear that
the institution may include in the denominator of the calculation only revenue generated for
Final Audit Report
A05F0017                                                                                Page 6 of 8


students enrolled in an eligible program as defined in 34 C.F.R. § 668.8. At the time the students
paid the application fees, the students were not enrolled at SBI [34 C.F.R. § 600.5(d)(1)]. The
1999 ED Policy Interpretation and Guidance cited by CEC does not support its position.

CEC stated that it is developing procedures and training to ensure that it will calculate the
percentage of revenue derived from the Title IV, HEA programs in compliance with the
requirements set forth in 34 C.F.R. 600.5. We analyzed CEC's revised procedures and believe
the procedures will help ensure CEC calculates a precise 90-10 Rule percentage. However, CEC
did not describe the training being developed or explain how the training will help ensure CEC
calculates a precise 90-10 Rule calculation.

After reviewing CEC's comments, we revised and added to Recommendation 1.1. We now are
recommending that CEC finalize and implement its revised procedures instead of recommending
that it establish and implement procedures. We also added to the recommendation. CEC needs
to describe the training being developed and explain how the training will help ensure CEC
calculates a precise 90-10 Rule calculation in accordance with the regulations



                     OBJECTIVE, SCOPE, AND METHODOLOGY 



The objective of our audit was to determine whether SBI complied with the 90-10 Rule, Section
102(b)(1 )(F) of the HEA, and had sufficient, reliable accounting records to support the
calculation for SBI's 2003 fiscal year (January 1 through December 31, 2003).

To achieve our objective, we:

    • 	 Obtained an understanding of CEC's internal control over preparation of SBI' s 90-10
        Rule calculation for the 2003 fiscal year;
    • 	 Obtained an understanding ofSBI's policies and procedures for entering revenue data
        into CEC's computerized accounting system;
    • 	 Obtained SBI's 90-10 Rule calculation and supporting detail, including accounting
        records and support for non-Title IV revenue transactions;
    • 	 Analyzed the composition of the numerator and denominator for the 90-10 Rule 

        calculation for SBI; 

    • 	 Recalculated the numerator and denominator for the 90-10 Rule calculation for SBI; and
    • 	 Compared the 90-10 Rule supporting detail to CEC's and SBI's accounting records.

In addition, we relied, in part, on CEC's revenue data. CEC uses computer software called
Campus 2000. To calculate the 90-10 Rule percentage, CEC used a Campus 2000-generated
report titled Cash Receipts Summary by Fund Source (CRSFS). The report lists cash receipts by
fund source and shows the 90-10 Rule percentage. We obtained the data for the CRSFS report.
The data included detailed revenue transactions for 20 fund source categories. To assess the
Final Audit Report
A05F0017                                                                                       Page 7 of 8


reliability of the data, we performed logic tests, compared CEC's data to the Department's data,3
and compared revenue transactions recorded in CEC's accounting records with supporting detail
maintained by SBI. Based on our tests, we concluded that the computer-processed data CEC
provided was sufficiently reliable for the purpose of our audit.

To ensure that CEC recorded revenue in a complete and accurate manner, we selected samples of
non-Title IV revenue transactions for review of supporting documentation from each of SBI' s 4
largest non-Title IV, HEA program fund sources. In all, the 4 revenue categories provided
$3,619,903 in non-Title IV revenue to SBI. We randomly selected 100 students from the 4
revenue categories and reviewed all revenue transactions for each student selected within that
category. In all, we reviewed 148 of the total 15,885 non-Title IV revenue transactions. The 148
transactions had an absolute value of$48,114 (of$3,619,903). We traced revenue amounts
shown in CEC's Campus 2000 computer system to individual electronic student ledger cards.
We then requested original, hardcopy supporting documentation for 20 (of the 148) transactions
from SBI's main campus in Atlanta and an additional 20 revenue transactions for 4 other SBI
locations. The revenue transactions were selected based on school location (coverage of 4
additional SBI locations), dollar amount, and month of transaction.

Finally, we gained an understanding ofCEC's system of internal control over determining the
amount of revenue SBI derived from the Title IV, HEA programs. We did not assess the
adequacy ofCEC's system of internal control. However, our review of revenue data and
accounting records disclosed instances of non-compliance with federal regulations that led us to
believe weaknesses existed in CEC's system of internal control over preparation ofthe 90-10
Rule calculation (See Audit Results).

We conducted our audit work at CEC's Headquarters in Hoffman Estates, Illinois, from June
through August 2005. We discussed the results of our audit with a CEC official on September 1,
2005.

We conducted the audit in accordance with generally accepted government aUditing standards
appropriate to the scope of the audit described above.



                              ADMINISTRATIVE MATTERS 



Statements that managerial practices need improvement, 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.



3We compared Title IV, REA program revenue data as shown in CEC's Campus 2000 computer system to Title IV,
REA program revenue data in the Department's Grants Administration and Payments System, National Student
Loan Data System, and Common Origination and Disbursement computer systems.
Final Audit Report
A05F0017                                                                               Page 8 of 8


This report incorporates the comments you provided in response to the draft report. 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 this audit.

                      Theresa S. Shaw, Chief Operating Officer
                      Office of Federal Student Aid
                      U.S. Department of Education
                      Union Center Plaza, Room 112Gl
                      830 First Street, N.E.
                      Washington, D.C. 20202

It is the policy of the U.S. Department of Education 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 appreciated.

In accordance with the Freedom of Information Act (5 U .S.C.§ 552), reports issued by the Office
of Inspector General are available 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
                                                                                                   Attachment 

                                                                                                  Page 1 of6 





~CAREER
~)1 EDUCATION
    CORPORATION




    December 20, 2005

    Richard J. Dowd 

    Regional Inspector General for Audit 

    U.S. Department ofEducation 

    Office ofInspector General 

    III N. Canal Street, Suite 940 

    Chicago, II. 60606-7297 


    Control Number ED-OIG/AOSFOOI7

    Dear Mr. Dowd:

    We have reviewed the Office ofInspector General's November 1, 2005 Draft Audit
    Report, titled Sanford-Brown Institute-Atlanta 's (SBI) Compliance with the 90-10 Rule
    for the 2003 Fiscal Year (Draft Report). We note that, although Career Education
    Corporation reported that SBI derived 88 percent of its revenue from Title N, HEA
    sources, the Draft Report states the Office ofInspector General's recalculation showed
     that SBI derived about 86.6 percent of its revenue from Title N, HEA sources. We
     understand that our comments below will not significantly change the result of the
     recalculation, however, we would like to provide them to you for your information
    relative to the four points noted in the Draft Report's Finding.

    Regarding Point 1:, Career Education Corporation agrees that the North Loop location
    was not eligible to receive Title N, IlEA funds during the 2003 fiscal year, as it did not
    begin classes until January 2004. Since the students at the North Loop location were not
    enrolled in eligible programs at that location during the 2003 fiscal year, Career
    Education Corporation agrees that cash receipts received during 2003 should not have
    been included in the denominator of the fiscal year 2003 90-10 calculation. The
    inclusion of the cash receipts was due to the unique timing of when classes began at the
    North Loop location. Training has been provided to ensure that only cash receipts related
    to campuses that were approved and offering classes during the fiscal year of the
    calculation are included in the 90-10 calculation.

    Regarding Point 2: Career Education Corporation concurs that our calculation ofSBI's
    percentage included revenue (on a cash basis) from all charges in the calculation, and,
    therefore, all charges were classified as institutional charges). As was noted in the Draft
    Report, Career Education Corporation's position with respect to "institutional charges" is
    based on the January 7, 1999 Department ofEducation's Policy Interoretation and
    Guidance under the "Subject: Calculafulg Institutional Refunds: What Are Institutional
    Charges?", issued by Policy Development Division ofFederal Student Aid, that states
    under the section titled "Refund Principle 1: Most Costs are Institutional":

                   2895 Cp.EENsrOINT PAP..KW~Y. SUITE 600. HOFFMAN ESTATES· ILLINOIS I!IOI93i
                            TEL (847) 781"]600. fAX   ca.71   781-3610'   www.careered.com
                                                                                                   Attachment 

                                                                                                  Page 2 of6 





       "The most important principle to keep in mind is that under current federal law
       and regulations provide that all tuition, fees, room and board, and other charges an
       institution assesses a student are institutional costs, unless demonstrated
       ofuerwise." It further states, "an institution is never compelled by federal law and
       regulations to classifY a charge as non-institutional ifit wishes to classifY the
       charge as institutional. However, if an institution wishes to exclude specific
       charges or costs from a refund calculation, it must demonstrate the charges are
       either non-institutional or are designated as excludable costs under the
       regulations."

The $160,015 indicated in the Draft Report as non-institutional charges (Exhibit 1)
included application fees of$122,220.S1 (Exhibit 2) from students who attended classes,
and $37,795 {$160,015-$122,220 from those applicants who did not begin classes. We
understand that the Office ofInspector General's position is that, because application fees
are charged before the student begins classes, such charges are to be excluded as
institutional charges from the denominator. However, the regulation only states that the
denominator includes "the sum of revenues including title IV, REA program :funds
generated by the institution from: tuition, fees, and other institutional charges for students
enrolled in eligible programs as defined in 34 CFR 668.8." (34 CPR 600.5 (d)(l» There
is not a reference to tuition, fees, and other institutional charges incurred after the student
begins classes. Further, in the February 28, 1994 Federal Register (Section 668.22),
when discussing the proposed institutional refunds and repayments, it states "The
Secretary believes that an application fee is a fee incurred separately from a student's
charges for an enrollment period and therefore, should not be included in the refund to
the student." (Exhibit 3) Thus, although excluded from tho refund calculation, the
Secretary recognizes the application fee as a fee incurred by the student. Therefore, while'
Career Education Corporation concurs that the $37,795 received from those potential
students who did not start school should not have been included in the calculation, CEC
considered the fees 0[$122,220.51 an institutional charge to students who attended SBl
and believe the charges to students were appropriately included in the denominator.

Regarding Point 3: Career Education Corporation concurs that it misclassified Title IV,
REA program revenue/refund transactions as non-Title IV program revenue. However,
as the Draft Report indicates, the result ofthese misclassifications, which were primarily
refunds, lowered the numerator ofthe calculation by about $815,000. As Mr. Tobin and
the staff ofour IT Djvision have discussed with your audit team, the misclassification
was primarily a systems conversion issue when CEC converted to CAMPUS 2000 and
that problem has been successfully addressed.

Regarding Point 4: Career Education Corporation concurs that certain Title IV, REA
program funds were paid to students as a return ofcredit balances and non-Title N, REA
program funds were applied to tuition and fees. However, the misclassification of
stipends was primarily a systems conversion issue as noted above and that problem has
been successfuUy addressed.
                                                                                               Attachment 

                                                                                              Page 3 of6 





Career Education Corporation has considered the Draft Report's ''Recommendations''
and would like to offer the following comments:

Regarding Recommendation 1.1: Career Education Corpomtion is developing
procedures and training "to ensure that it will calculate the percentage of revenue derived
from the Title IV, REA programs in compliance with the requirements set forth in 34
C.F.R. 600.S." In addition to the attached procedures relative to the calculation of90­
10, entitled "90/10 Reporting"(Exbibit 4), Career Education Corporation is developing
computer systems enhancements to address coding issues and provide reasonable
assurance that Title IV, HEA program funds are applied to tuition and fees before non­
Title IV stipends are paid to students as Title IV stipends.

Regarding Recommendation 1.2: Career Education will, if requested by Federal Student
Aid (FSA), "re-ca1culate the 90-10 Rule percentage for SBI's 2004 fiscal year, report the
percentage to FSA, and provide FSA with the revised calculation and the detail behind
the revised calculation". We would expect FSA to make a decision in this regard after our
comments are considered and the Final Report is issued by the Office ofInspector
Geneml. CEC will await specific guidance from FSA before proceeding with this
recommendation.

Please contact me if you have questions or require additional information.




                        President, and Chief Executive Officer

Enclosures
                                                                                                   Attachment 

                                                                                                  Page 4 of6 





                                                                        Exhibit 4
                                 90/10 Reporting
 To be eligible for participation in the federal student aid programs, a proprietary
 institution may derive no more than 90% of its revenue from Title IV fimds. A school
 must determine its revenue percentages using the following fonnula for its latest
 complete fiscal year:

 Title IV Funds (excluding LEAP and FWS) used for tuition, fees, and other institutional
 charges to students
 The sum ofrevenues generated by the school from tuition, fees, and other institutional 

 charges for students enrolled in eligible training programs plus school activities necessary 

 for the education or training ofstudents enrolled in those eligible programs 


 A proprietary institution must use the cash basis ofaccounting in determining whether it 

 satisfies tQ.e 90/10 Rule. Under the cash basis ofaccounting, revenue is recognized when 

 received. In order for an institution to recognize revenue under the cash basis of 

 accounting, that revenue must represent cash received from a source outside the 

 institution.                                      .


Title IV Funds <Numerator) 

For purposes of det~mrlning the 90/10 calculation, the following funds are considere~ 

Title IV: Federal PellGrants, Federal BEOG (federallihare only), Federal Stafford Loans 

(Subsidized and Unsubsidized); Federal Perkins Loans, and Federal PLUS LoIinS. 


 The totals do not include refunds paid to or on behalf ofstudents who have withdrawn,
dropped out, been expeiled, or otherwise failed to complete the period ofenrollment.
However, in·fignring what Title IV funds were used to pay tuition, feCs, and other
institutional charges, an institution must asswne that any Title IV funds disbursed or
delivered to, or on behalf of, a student were used for such costs, regardless ofwhether the
institution credits those funds to the student's account or pays them directly to the
student, unless those costs 'were otherwise paid by ~t funds ptovide(l:!)~!!9nfederal .___ ... __._
public agencies, grant funds provided by independent private sources, funds from
qualified government agency job training contracts, or funds received from a prepaid
state tuition plan. Therefore, stipends to students are appropriate only to the extent such
stipends were for Title IV funds that exceeded tuition, fees, and other institutioJial
charges (less grant funds provided by nonfederal public agencies, grant funds provided
by independent private sources, funds from qualified government agency job training
contracts, or funds received from a prepaid state tuition plan) for the fiscal year.

Revenues (Denominator)                 .
In addition to tuition, fees, and other institutional charges (e.g.,.books and supplies)
(Note: the tuition, fees, and other institutional charges totals do not include refunds paid
to or on behalfofstudents who have withdrawn, dropped out, been expelled, or otherwise
failed to complete the period ofenrollment.), an institution may only include. revenue
generate by the institution from activities it conduc~ that are necesslU}' for it ~tion or
                                                                                                Attachment 

                                                                                               Page 5 of6 





· 	training These activities must be conducted on campus or at a facility under the control
  ofthe institution; performed·under the supervision ora member ofthe institution's
  faculty; and required to be performed by all students in a specific educational program at
  the institution. Examples of such activities wouJd be restaurant revenue at schools with
  cuJioary programs, if the preceding conditions are met or message therapy clinic revenue
  at s.chools with message therapy programs, if the preceding conditions are met.

 Institutional grants in the fonn oftuition waivers do not count as revenue because no new
 revenue is generated. Therefore, such fund sources as institutional grants, institutional
 scholarships, or staff grants (or employee grants) are excluded from revenues. One
 exception is donations from a related party to create restricted accounts for institutional
 scholarships, but only the amount eamed on the restricted account and used for
 scholarships wouJd count as revenue in the denominator.

  Loans made by a private lender that are in any manner guaranteed by the institution are
  known as recourse loans. The proceeds from recourse loans may be Included in the
 denominator ofan institution's 90110 calCulation for the fiscal year in which the
 revenues were received, provided that the institution's reported revenues are also reduced
 by the amount ofrecourse loan payments made during that year. Therefore, total
 revenues from Recourse Loans and ELF Loans must be reduced by the amount of
 recourse loan payments made by the institution (or CEC) during the fiscal year for those
 loans.

 Process for determining 90/10 calcuJ8tion
 Using CampusVue data, a spreadsheet for each school will be run by coIpOrate IT and
provided to the school that provides ~Rtutional.~harges, Title N aid disbursed, and
 Title IV refunds (R2T4) IDljde for each student for the fiscal year. This spreadsheet will
.provide the Title N timds applied to institutional charges (the amount oeTitle N .funds
disbursed less R2T4 refunds not to exceed the amount ofinstitutional charges). The sum
ofthe Title N timds applied to institutional charges for all students win represent the
numerator of the calculation.                                      .

 The CampusVue Cash Receipts Summary by Fund Source report is used to calculate the
 denominator ofthe 90/10 percentage for each school. The transaction dates selected in
th~ report match the fiscal year (e..g.• 111104 through 12131104 for the 2004 fiscal year).
School statuses selected in the report include only statuses for students who attended the
school (e.g., original enrollments wouJd not be included as they did not attend classes at
the school). Fund sources selected in the report shouJd exclude non·cash fund sources as
described above. The total Net received Less Stipends will represent the denominator of
the calculation.

The school will run the Cash Receipts by Fund Source report a second time with o~ the
Student Fund Source (i.e., NuJl account). This will be downloaded into an excel
spreadsheet so individual transactions may be reviewed to determine iftney were
properly categorized. Any Title N transactionS that appear in the Null account must be
manually adjusted to properly reflect.in the numerator (e.g., a Pen disbursement ~ the
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                                                                                                   Page 6 of6 




'.


     .Null account is an addition to the numerator, a Pell refund in the N'ull account is a
      reduction to the nwnerator, etc.)." Documentation ofany such adjustments must be
      maintained. Finally, the other revenue (e.g., restaurant revenue or massage therapy clinic
      revenue as described above) may be added to thedenomlnator.

     Once the processes tG calculate the numerator and denominator are completed, the
     calculation plus bllCk-up data (i.e., spreadsheet, Cash Receipts Report by Fund Source,
     and documentation ofadjustments from the Null account, and documentation ofother
     revenue) are provided to corporate Finance. Corporate Finance will review and combine
     calculations by OPE ID within the cnc system. The OPE ID often includes the main
     CIIItlpus and affiliated additional locations. Corporate Finance will provide the data by
     OPE ID to the auditors for review and reporting.