oversight

Professional Judgement at the University of Colorado.

Published by the Department of Education, Office of Inspector General on 1998-07-17.

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

        PROFESSIONAL JUDGMENT
                 AT THE
        UNIVERSITY OF COLORADO

                                 FINAL AUDIT REPORT




                                 Audit Control Number 06-70009
                                           July 1998




Our mission is to promote the efficient                          U.S. Department of Education
and effective use of taxpayer dollars                            Office of Inspector General
in support of American education                                 Dallas, TX
                UNITED STATES DEPARTMENT OF EDUCATION
                                   OFFICE OF INSPECTOR GENERAL
                            1999 BRYAN STREET, HARWOOD CENTER, SUITE 2630
                                       DALLAS, TEXAS 75201-6817
                                 PHONE: (214) 880-3031 FAX: (214) 880-2492



July 17, 1998                                                               Audit Control Number 06-70009

Jerome Sullivan, Director of Financial Aid
University of Colorado at Boulder
Campus Box 106
Boulder, Colorado 80309-0106

Dear Mr. Sullivan:

This is our audit report, Professional Judgment at the University of Colorado. The report
incorporates the comments you provided in response to a draft which was provided to you. 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 U.S. Department of
Education official, who will consider them before taking final Departmental action on the audit:

                Dr. David A. Longanecker
                Assistant Secretary for Postsecondary Education
                ROB-3, Room 4082
                7th and D Streets, SW
                Washington, DC 20202-5101

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 is requested.

In accordance with the Freedom of Information Act (Public Law 90-23), reports issued to the
Department’s grantees and contractors are made available, if requested, to members of the press
and general public to the extent information contained therein is not subject to exemption in the
Act.

Please refer to the above audit control number in all correspondence relating to this report.

                                                    Sincerely,



                                                    Daniel J. Thaens
                                                    Western Area Manager
                                                    Dallas, Texas




     OUR MISSION IS TO ENSURE EQUAL ACCESS TO EDUCATION AND PROMOTE EDUCATION EXCELLENCE THROUGHOUT THE NATION
                             TABLE OF CONTENTS


EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

AUDIT RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

         How Eligibility is Determined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

         The University’s Use of Professional Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

         Cost of Living Adjustment (COLA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

         Total Medical and Dental Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

         Other Inappropriate Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

         Unreported Professional Judgment Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

AUDITEE COMMENTS TO DRAFT REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

OIG RESPONSE TO COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

OBJECTIVE, SCOPE AND METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

STATEMENT ON MANAGEMENT CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

ATTACHMENT
                  PROFESSIONAL JUDGMENT
                           AT THE
                  UNIVERSITY OF COLORADO

                         EXECUTIVE SUMMARY
The University of Colorado used professional judgment to modify the statutory needs analysis
formula for certain students based on their place of residence. The modification involved the use
of a cost of living adjustment for students who were from locations that were designated as high
cost living areas by the American Chamber of Commerce Researchers Association. The Higher
Education Act does not grant Financial Aid Administrators authority to make modifications to the
statutory formula because they feel a student’s place of residence constitutes a financial hardship.
We also identified other inappropriate uses of professional judgement. We are questioning
professional judgment actions for 34 percent of 100 students sampled. The questioned actions
resulted in $15,082 in additional Pell Grants being disbursed in award years 1994-95 through
1996-97.

The University also did not report all professional judgment actions to the Department’s Central
Processing System. The University reported using professional judgment for 296 students in
award year 1995-96. We estimate professional judgment was used but not reported for an
additional 371 students in that year.

We are recommending the University: 1) establish procedures for using professional judgment
only after determining on an individual student basis that special circumstances exist and the
actions do not modify or replace allowances already included in the statutory needs analysis
formula, (2) refund the $15,082 in additional Pell Grants disbursed as a result of the unreasonable
professional judgment actions for the sample students, 3) perform a 100 percent review of the
professional judgment actions not included in our audit for award year 1994-95 through the
current period and refund any additional Pell Grants disbursed as a result of the unreasonable use
of professional judgment (a statistically valid sample review may be substituted for a review of all
actions), and (4) establish procedures which ensure all professional judgment actions are reported
to the Central Processing System which at a minimum should include an after-the-fact review to
ensure that all actions have been properly input.

The University disagreed that professional judgment was used improperly. Although the
University agreed that the Higher Education Act prohibits general modifications to the statutory
formula, officials stated there was no specific law which discussed whether the relative cost of a
student’s place of residence constitutes either a special circumstance or a general modification to
the formula. The University emphasized they exercised the best judgment for their students
under the authority given by Congress. We continue to believe that the University’s actions
constituted modification of the statutory formula and have not changed our recommendations.
The University’s response is summarized following our recommendations and included in total as
an attachment to the report.
Audit Control Number A06-70009                                                                Page 2



                                 AUDIT RESULTS
The University of Colorado (University) reported using professional judgment for 1,655 or 16
percent of its 10,615 Pell Grant recipients for award years 1994-95 through 1996-97. By
comparison, Financial Aid Administrators (FAAs) nationally reported using professional judgment
for about 4 percent of their Pell Grant recipients. We reviewed a sample of 100 of the 1,655
students with reported actions and determined that 34 had one or more unreasonable professional
judgment actions that resulted in total Pell Grant overpayments of $15,082. Based on the sample
results, we estimate 563 students may have received $151,346 or as much as $347,868 in Pell
Grant overpayments.

We also determined that the University had not reported all professional judgment actions in
award year 1995-96 to the Department’s Central Processing System (CPS). The University
reported using professional judgment for 296 students in that year. We estimate professional
judgment was used but not reported for an additional 371 students. These students were not
included in our initial sampling universe. However, based on a limited sample review of 38
students with unreported actions, we found no significant differences in types of actions taken for
these students and the students in our initial sample. Therefore, we believe additional Pell Grant
overpayments were made to the students with unreported professional judgment actions.



How Eligibility is                    Title IV, Part F of the Higher Education Act (Act) provides
Determined                            for the use of a needs analysis formula to determine
                                      eligibility for student financial aid. A family’s financial
                                      resources are assessed to determine a reasonable amount
                                      that they should contribute to meet the student’s
                                      postsecondary education costs. This amount is referred to
                                      as the Expected Family Contribution (EFC). The statutory
                                      needs analysis formula recognizes that part of a family’s
                                      resources must be devoted to taxes, basic living costs, and
                                      other unavoidable expenses. Allowances for living expenses
                                      are made in the Income Protection Allowance (IPA). For
                                      example, the IPA includes an allowance for food, housing,
                                      transportation, clothing, and medical expenses. An
                                      allowance is also made for state and local taxes and varies
                                      depending on the state of residence.

                                      FAAs are allowed by section 479A of the Act to, among
                                      other things, use their discretion or professional judgment
                                      on a case-by-case basis either to increase or decrease one or
                                      more of the financial elements used to calculate the EFC.
Audit Control Number A06-70009                                                           Page 3



                                 Congress recognized that a student or parent’s financial
                                 situation may have changed or they may have other special
                                 circumstances. Special circumstances are conditions that
                                 differentiate an individual student from a whole class of
                                 students. For example, they may include lower earnings
                                 due to recent unemployment or illness and unusually high
                                 medical or dental expenses. Professional judgment may also
                                 be used to change a student’s status from dependent to
                                 independent.

                                 Section 479A does not grant the FAA authority to use
                                 professional judgment to make general modifications to the
                                 statutory formula. The FAA should not replace or modify
                                 formula values simply because the FAA believes that the
                                 values are generally not appropriate or adequate for Pell
                                 Grant applicants and their families. Individual special
                                 circumstances must exist, and be documented, before a
                                 FAA may make a professional judgment adjustment.


The University’s Use of          The University’s usual practice was to initiate a professional
Professional Judgment            judgment action after a student submitted a letter requesting
                                 such action and provided documentation of special
                                 circumstances. The University reduced the income of the
                                 student and/or parent by any unusual expenses or
                                 circumstances of the family. For students who were from
                                 locations designated as high cost living areas, the University
                                 would reduce the remaining income balance by a cost of
                                 living adjustment (COLA) obtained from the American
                                 Chamber of Commerce Researchers Association (ACCRA).

                                 We agreed with the University’s use of professional
                                 judgment when a family experienced special circumstances,
                                 such as a reduction in income due to unemployment,
                                 divorce, or illness. However, we disagreed with the
                                 University’s use of professional judgment when it allowed
                                 COLAs and total medical and dental expenses. We do not
                                 consider place of residence to be a special circumstance, and
                                 normal or usual medical expenses are included in the IPA.


Cost of Living                   The University’s professional judgment actions included
                                 using a COLA to reduce income for 30 of the 100 sample
Audit Control Number A06-70009                                                           Page 4



Adjustment (COLA)                students. The University applied a COLA to assist students
                                 in receiving additional aid based on living in an area
                                 designated as high cost.

                                 The statutory formula included factors that considered the
                                 families’available income and net worth in determining the
                                 students’EFCs. The formula also provided for standard
                                 state and other tax allowances depending on where the
                                 family lived. Further, the formula considered the age of the
                                 older parent and provided a standard allowance, referred to
                                 as the IPA, for the basic living (including housing) costs of
                                 the family. For example, the IPA was $17,150 in 1995-96
                                 for a family of four with one in college.

                                 The University’s use of a COLA did not constitute special
                                 circumstances for individual students and provided an
                                 additional allowance for students based solely on where
                                 they lived. This practice resulted in the University’s
                                 students being treated differently than similar students at
                                 other schools who did not use COLAs to reduce incomes.
                                 The following examples illustrate how the University’s
                                 practice of using a COLA to reduce income resulted in
                                 students receiving excessive Pell Grants:

                                 ‚      The FAA reduced the family’s income by a COLA
                                        factor of 120 percent from $28,994 to $24,162. The
                                        student requested professional judgment and cited
                                        living in Telluride, Colorado, as a special
                                        circumstance. We disagreed with the University’s
                                        practice of modifying the statutory formula for
                                        families residing in ACCRA designated high cost
                                        living areas. A place of residence was not a special
                                        circumstance that differentiated the student from a
                                        class of students. The income reduction enabled the
                                        student to receive an additional $900 in Pell.

                                 ‚      The FAA reduced another family’s income from
                                        $36,338 to $33,709 by applying a COLA because
                                        the family lived in Denver. The student requested
                                        professional judgment on the basis of a loss of child
                                        support; however, since the student had not
                                        reported receiving any child support, no change was
                                        made. Apparently, the FAA approved the use of a
                                        107.8 percent COLA obtained from the ACCRA
                                        index of high cost living areas in order to help the
Audit Control Number A06-70009                                                                                           Page 5



                                                           student receive more aid. The income reduction
                                                           enabled the student to receive an additional $200
                                                           Pell Grant.


Total Medical and                                The University also accepted the total medical and dental
Dental Expenses                                  expenses reported by families and used the amounts to
                                                 reduce incomes for nine1 of the 100 students sampled.
                                                 While we agree that medical or dental expenses which are
                                                 unusual and not covered by insurance could be a basis for
                                                 using professional judgment, the University did not make
                                                 such a determination. Further, the IPA provides an
                                                 allowance for some medical expenses. For example, the
                                                 IPA of $17,150 in 1995-96 for a family of four with one in
                                                 college includes an allowance of about $1,700 for medical
                                                 expenses.

                                                 The Free Application for Federal Student Aid lists unusual
                                                 medical or dental expenses not covered by insurance as an
                                                 example of a special circumstance, however, it does not
                                                 discuss the fact that the IPA already included an allowance
                                                 for some medical expenses. Prior to the Higher Education
                                                 Amendments of 1992, an allowance was made for total
                                                 medical and dental expenses that exceeded 5 percent of the
                                                 family’s total income. The statutory needs analysis formula
                                                 used after 1992 did not include an allowance for unusual
                                                 medical expenses. Nevertheless, Congress intended for
                                                 unusual medical expenses to continue to be allowed through
                                                 FAA’s use of professional judgment. We
                                                 believe an allowance for medical and dental expenses that
                                                 exceed 5 percent of a family’s income would constitute an
                                                 unusual expense and allowed such in our calculation of Pell
                                                 Grant overpayments.



         1
          The University also used professional judgment to include cost of living adjustments for eight of the nine students.
The Pell Grant overpayments relating to the cost of living adjustments are included in the previous section on Cost of living
adjustments and are not duplicated here.
Audit Control Number A06-70009                                                          Page 6



                                 The following examples illustrate the University’s practice
                                 of allowing total medical and dental expenses reported by
                                 families:

                                 ‚      A family with an income of $25,872 reported
                                        medical expenses of $773 (3 percent of income).
                                        The University used professional judgment to allow
                                        the entire $773 as a reduction to income. Since the
                                        expenses did not exceed 5 percent of the family’s
                                        income, we did not consider them unusual and did
                                        not include them in calculating a Pell Grant
                                        overpayment.

                                 ‚      A family with an income of $32,496 reported
                                        medical expenses of $193 (.6 percent of income).
                                        The University used professional judgment to allow
                                        the entire expense as a reduction to income. We did
                                        not include the expenses in our calculation of a Pell
                                        Grant overpayment because the expenses were not
                                        unusual.


  Other Inappropriate            The University inappropriately used professional judgment
                                 for three other students. For example, the University did
         Uses
                                 not include unemployment compensation as part of income
                                 when calculating the EFC for one student. This oversight
                                 enabled the student to receive an additional $700 in Pell
                                 Grant funds.


Unreported Professional          The University did not report an estimated 371 professional
  Judgment Actions               judgment actions to the CPS for award year 1995-96. The
                                 Department requires FAAs to report such actions. Our
                                 analysis of CPS data identified 598 Pell Grant recipients in
                                 award year 1995-96 whose records contained a reported
                                 change in income but not a professional judgment action.
                                 We selected a random sample of 61 of the 598 students and
                                 found 38 (62 percent) had income changes that were a
                                 result of the University’s use of professional judgment. The
                                 remaining changes were corrections of income data
                                 previously reported by the students.
Audit Control Number A06-70009                                                               Page 7



                                     The University did not know why professional judgment
                                     actions went unreported. The Financial Aid Office flagged
                                     the 38 files as professional judgment before forwarding
                                     them to the University’s computer center for transmittal to
                                     the CPS. CPS officials were unaware of any programming
                                     problems which would have caused rejection of properly
                                     submitted files during this time period. The University
                                     reported using professional judgment for 296 students in
                                     award year 1995-96. We estimate professional judgment
                                     was used but not reported for an additional 371 (598 x 62
                                     percent) students in that year.

                                     We performed a limited review of records for the 38
                                     students and found no significant differences in types of
                                     actions taken for these students and the students in our
                                     initial sample. Therefore, we believe additional Pell Grant
                                     overpayments were made to students with unreported
                                     professional judgment actions.




                         RECOMMENDATIONS
We recommend the Department require the University to:

1.     Establish procedures for using professional judgment only after determining on an
       individual student basis that special circumstances exist and the actions do not modify or
       replace allowances already included in the statutory needs analysis formula.

2.     Refund the $15,082 in Pell Grants disbursed as a result of the unreasonable professional
       judgment actions.

3.     Perform a 100 percent review of the professional judgment actions not included in our
       audit for award year 1994-95 through the current period and refund any additional Pell
       Grants disbursed as a result of the unreasonable use of professional judgment (a
       statistically valid sample review may be substituted for a review of all actions).

4.     Establish procedures to ensure all professional judgment actions are reported to the CPS
       which at a minimum should include an after-the-fact review to ensure that all actions have
       been properly input.
Audit Control Number A06-70009                                                           Page 8



      AUDITEE                    The University stated it did not agree with our
    COMMENTS TO                  interpretation of the professional judgment provisions of the
                                 Act and that it was inappropriate for us to second guess
    DRAFT REPORT
                                 their professional judgment actions. Although the officials
                                 agreed that the Act prohibits making general modifications
                                 to the statutory formula, they stated there was no specific
                                 rule which discussed whether the relative cost of a student’s
                                 place of residence constitutes either a special circumstance
                                 or a general modification to the statutory formula.

                                 The officials further stated they have a practice in place for
                                 using professional judgment only after determining on an
                                 individual student basis that special circumstances exist and
                                 the actions do not modify or replace allowances already
                                 included in the statutory formula. The University said that
                                 since no specific guidance had been issued at the federal
                                 level to assist FAAs in making professional judgment
                                 determinations, it had internally defined reasonable criteria
                                 and has consistently applied the criteria in making
                                 determinations. Although the University agreed to refund a
                                 $700 Pell Grant awarded to one student, officials disagreed
                                 with all other refund recommendations.

                                 The University concurred in principle with the
                                 recommendations to establish procedures to ensure all
                                 professional judgment actions are reported. Officials said
                                 they were reviewing the feasibility of instituting an
                                 electronic procedure to further verify the accuracy of CPS
                                 records.


  OIG RESPONSE TO                We have not changed our recommendations based on the
     COMMENTS                    University’s response. We did not question cases in which
                                 the University determined and documented on a case-by-
                                 case basis special circumstances (unemployment, illnesses,
                                 etc.), and the income reductions and additional expenses
                                 resulting from those circumstances. However, we did
                                 question cases where the University did not determine or
                                 document the specific additional expenses incurred by
                                 families but simply used COLAs to reduce income. COLA
                                 amounts were based solely on where the families lived. The
                                 COLA income reductions were generally in addition to
                                 other documented and allowable professional judgment
                                 actions. This practice constituted a modification to the
                                 statutory formula that resulted in University students being
Audit Control Number A06-70009                                                                 Page 9



                                      treated differently than similar students at other schools that
                                      did not use COLAs to reduce incomes. The Act states that
                                      special circumstances shall be conditions that differentiate
                                      an individual student from a class of students rather than
                                      conditions that exist across a class of students.

                                      We allowed reductions in income for documented medical
                                      and dental expenses that exceeded 5 percent of the family’s
                                      income. The income protection allowance already
                                      considered an allowance for a families’usual or normal
                                      medical expenses. Allowing a reduction for the total
                                      medical and dental expenses would have resulted in a
                                      duplicate reduction for a portion of the expenses.




BACKGROUND

The University of Colorado, a public institution of higher education founded in 1876, enrolls more
than 25,000 students at its campus in Boulder, Colorado. The University offers over 2,500
different courses in over 150 fields of study. There are approximately 60 academic programs
available at the bachelor’s level, 50 at the master’s level and 40 at the doctoral level. The
University is governed by an elected, nine-member Board of Regents, charged by the state
constitution with general supervision of the University. The University participates in the Federal
Direct Student Loan, Federal Perkins Loan, Federal Supplemental Educational Opportunity
Grant, Federal Work Study, and Federal Pell Grant programs. Pell Grants were awarded to
10,615 students totaling $17,012,083 during award years 1994-95 though 1996-97.


OBJECTIVE, SCOPE AND METHODOLOGY

The purpose of this audit survey was to determine if the use of professional judgment resulted in
appropriate Pell Grant awards to the students. We also determined if the University complied
with various Student Financial Assistance (SFA) programs requirements. Because our survey
work did not identify problems in the University’s compliance with other SFA program
requirements, our detailed audit work was limited to the use of professional judgment.

To accomplish our objectives, we reviewed a random sample of 100 students from a universe of
1,655 Pell Grant recipients for whom a professional judgment action was reported for award years
1994-95 through 1996-97. The sample was not sufficient to project the results, however, it
represented about six percent of the universe. We identified the school’s universe of Pell Grant
recipients with professional judgment actions by reviewing each recipient’s record maintained
by the CPS. We also reviewed a random sample of 30 student files from the universe including
Audit Control Number A06-70009                                                               Page 10



recipients with no professional judgment actions reported for award years 1995-96 and 1996-97
to test compliance with SFA program requirements.

We obtained computer generated data from the CPS and the Pell Grant Recipient System for
background and to identify the universes of Pell Grant recipients from which our student samples
were randomly chosen. We found that the CPS data for this school was incomplete because the
University had not reported all professional judgment actions. We reviewed a random sample of
61 of 598 students whose CPS records showed a change in income but not a professional
judgment action in award year 1995-96. Although the CPS data for this school was not reliable
because not all professional judgment actions were reported, we were able to accomplish our
audit objectives by using the data that was reported and by identifying and testing the unreported
professional judgment actions. The failure to report all professional judgment actions is discussed
in the AUDIT RESULTS section of this report.

We also interviewed University officials and reviewed working papers prepared by the school’s
independent public accountant. Further, we reviewed the professional judgment provisions of the
Act and guidance the Department provided to schools in Counselor’s Handbooks, Dear Colleague
letters, and other documents. Our review was conducted in accordance with generally accepted
government auditing standards appropriate to the scope described above.


STATEMENT ON MANAGEMENT CONTROLS

As part of our review, we assessed the system of management controls, policies, procedures and
practices applicable to the University’s use of professional judgment. Our assessment was
performed to determine the level of control risk for determining the nature, extent, and timing of
our substantive tests to accomplish the audit objectives.

For the purpose of this report, we assessed and classified the significant management controls into
the following categories:

--     identifying students for whom professional judgment will be used, and

--     documenting and reporting the use of professional judgment.

Because of inherent limitations, a study and evaluation made for the limited purpose described
above would not necessity disclose all material weaknesses in management controls. However,
our assessment identified weaknesses which are discussed in detail in the Audit Results section of
this report.
                              DISTRIBUTION SCHEDULE
                              Audit Control Number 06-70009
                                                                   Copies

Auditee                                                               1

Action Official

         David A. Longanecker, Assistant Secretary
         Office of Postsecondary Education
         Department of Education
         ROB-3, Room 4082
         7th and D Streets, SW
         Washington, DC 20202-5101                                    1

Other ED Offices

         Diane Rogers, Deputy Assistant Secretary for
          Student Financial Assistance Programs, OPE                  1

         Linda Paulsen, Service Director
         Accounting and Financial Management Service, OPE             1

         Secretary’s Regional Representative, Region VI               1

OIG
         Inspector General                                            1
         Deputy Inspector General                                     1
         Assistant Inspector General for Audit                        1
         Assistant Inspector General for Investigation                1
         Assistant Inspector General for Operations Western Area      1
         Special Counsel to IG                                        1
         Regional Inspector General for Investigation                 1
         RIGA Regions 2, 3, 4, 5, 7, 9                                6

Others

         Jamienne S. Studley, General Counsel (A)
         Office of General Counsel
         Department of Education
         600 Independence Ave. SW
         Room 5400
         Washington, DC 20202-2100                                    1