oversight

Review of Student Financial Aid Compliance at Success Institute of Business.

Published by the Department of Education, Office of Inspector General on 2000-08-07.

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

       REVIEW OF STUDENT FINANCIAL AID
               COMPLIANCE AT
        SUCCESS INSTITUTE OF BUSINESS


                                 FINAL AUDIT REPORT




                               Control Number ED-OIG/A06-90004
                                          August 2000




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, Texas
                               NOTICE
Statements that management practices need improvement, as well as other
conclusions and recommendations in this report, represent the opinions of the
Office of Inspector General. Determination of corrective action to be taken
will be made by the appropriate Department of Education officials.

In accordance with the Freedom of Information Act (5 U.S.C. §552), reports
issued by the Office of Inspector General are available, if requested, to
members of the press and general public to the extent information contained
therein is not subject to exemptions in the Act.
                                TABLE OF CONTENTS


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

AUDIT RESULTS ............................................................................................. 3

        Direct Loan Funds Improperly Retained..................................................... 3
        Institutional Eligibility Requirement Not Met............................................. 3
        Lack of Financial Responsibility and Administrative Capability.................. 5
           Failure to Make Required Refunds........................................................ 6
           Inaccurate Refunds............................................................................... 6
           Untimely Refunds ................................................................................ 6
           Lack of Ability to Benefit ..................................................................... 7
           Inaccurate and Unreliable Accounting Records and
              Financial Statements .......................................................................... 7
           Amounts to Be Returned to the Department and Lenders........................ 7

RECOMMENDATIONS .................................................................................... 8

OTHER MATTERS ........................................................................................... 8

SUBSEQUENT EVENTS................................................................................... 9

SUCCESS INSTITUTE’S COMMENTS TO DRAFT REPORT ........................ 10

OIG RESPONSE TO COMMENTS.................................................................. 10

BACKGROUND.............................................................................................. 10

OBJECTIVE, SCOPE, AND METHODOLOGY............................................... 11

STATEMENT ON MANAGEMENT CONTROLS ........................................... 12

APPENDIX I

APPENDIX II
Control Number: ED-OIG/A06-90004                                                                  Page 1




                          EXECUTIVE SUMMARY

Success Institute of Business (Success Institute), a proprietary school located in Houston, Texas,
improperly retained $80,000 of William D. Ford Federal Direct Loan Program (Direct Loan) funds
that were received in excess of what the school requested. Success Institute did not use the funds
for financial aid to eligible students. Instead, two of the school owners withdrew $65,000 of the
funds and the remaining $15,000 was deposited in the school’s operating account. At the
completion of our audit fieldwork, the $80,000 had not been returned to the school’s Federal
account or to the Department.

Success Institute also did not qualify as an eligible institution for participation in the Title IV,
Student Financial Assistance programs because it received 86.58 percent of its revenue from
Title IV sources for the fiscal year ended December 31, 1997. As a result, the school was
ineligible to participate in the Title IV programs from January 1 through December 31, 1998.
During 1998, Success Institute received $2,156,203 in Title IV funds.

Section 481(b) of the Higher Education Act in effect during the audit period, required that
proprietary institutions derive at least 15 percent of their revenues from non-Title IV sources to
participate in the Title IV programs. Conversely, no more than 85 percent of total revenue could
be derived from the Title IV programs. This institutional eligibility requirement is referred to
here as the “85 Percent Rule.” Success Institute reported that it received 66.6 percent of total
revenue from Title IV sources and met the 85 Percent Rule in the notes to its fiscal year 1997
financial statements. Success Institute provided a revised calculation after our audit began that
indicated the school received 83.31 percent of total revenue from Title IV sources. We
determined the revised calculation contained errors and the school received 86.58 percent of its
total revenue from Title IV sources. At the completion of our audit fieldwork, Success Institute
had not reported on whether it met the requirement for the fiscal year ending December 31, 1998.

Success Institute also did not demonstrate financial responsibility or administrative capability.
To participate in Title IV programs, an institution must demonstrate that it is financially
responsible and that it has the capability to administer adequately the Title IV programs.
Success Institute failed to pay required refunds, incorrectly calculated refunds or failed to pay
refunds timely, provided Title IV program funds to students who failed to demonstrate an ability
to benefit from the educational programs, did not maintain reliable and accurate accounting
records, and failed to report accurate revenue amounts to the Department in its financial
statement disclosure for the 85 Percent Rule calculation. Success Institute’s failure to comply
with Title IV regulations resulted in $123,099 of unpaid refunds and unallowable Title IV
disbursements.
Control Number: ED-OIG/A06-90004                                                                    Page 2




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

        1. Return to the Department the $80,000 of Direct loan funds that were erroneously
           provided to the school in excess of what the school requested and inappropriately
           withdrawn from the Federal account, along with interest on those funds from
           September 5, 1997, through the date that the funds are received by the Department.

        2. Return to the Department or lenders the $2,156,203 of Title IV funds received for
           students during the January 1 through December 31, 1998 ineligible period.

        3. Return to the Department or lenders $9,213 of Title IV funds, including $193 of
           unpaid refunds and $9,020 of Title IV funds disbursed for students who did not
           demonstrate an ability to benefit from the education provided. 1

                                        Subsequent Events

The Department transferred Success Institute to a system of payment by reimbursement on
February 3, 2000. On February 10, 2000, the Department’s Southwest Case Management
Division conducted a program review at the school and identified $827,487 in unmade refunds
and ineligible disbursements. The Texas Guaranteed Student Loan Corporation (TGSLC)
notified Success Institute on March 7, 2000, that it had initiated an emergency action to stop
guaranteeing Federal Family Education Loans (FFEL) to students attending the school and that it
intended to terminate the school’s eligibility for loan guarantees on March 28, 2000. TGSLC
had identified over $700,000 of unpaid refunds in an on-site program review completed on
March 3, 2000. Success Institute did not appeal and the termination became effective on March
28, 2000. The school ceased providing educational services and closed on March 27, 2000.

                      Success Institute’s Comments to Draft Report

Success Institute’s President did not disagree with our conclusion that Success Institute failed to
demonstrate financial responsibility or administrative capability. She stated that neither she nor her
husband “…withdrew or knowingly accepted money that did not belong to Success Institute.”
Success Institute did not agree with our 85 Percent Rule finding. We paraphrased the school’s
comments and provided additional OIG comments after the Subsequent Events section of this
report. A copy of the response is included as Appendix II to this report.


1
 The $9,213 is part of the $123,099 in unpaid refunds and unallowable disbursements and was received
before Success Institute became ineligible on January 1, 1998. The remaining $113,886 ($123,099 –
9,213) is included in the $2,156,203 of Title IV funds that the school received during January 1 through
December 31, 1998, when Success Institute was not eligible. A complete explanation of the Title IV
amounts that should be returned to the Department and lenders is included as an appendix I to this report.
Control Number: ED-OIG/A06-90004                                                                   Page 3



                                      AUDIT RESULTS
Success Institute received $80,000 of Direct Loan funds in excess of what the school requested and
used the funds for purposes other than financial aid to eligible students. Success Institute also
disbursed $2,156,203 of Title IV funds for students during a period it was not eligible to participate
in the Title IV programs. Further, the school did not demonstrate financial responsibility and
failed to administer adequately the Title IV programs.

Direct Loan Funds Improperly Retained

Success Institute did not comply with the Standard of Conduct provision in Title 34 of the Code of
Federal Regulations (34 CFR), Section 668.82, when it improperly retained $80,000 of Direct Loan
funds received in September 1997 in excess of what the school requested. The $80,000 was not
used for financial aid to eligible students. Instead of returning the funds to the Department, Success
Institute withdrew the $80,000 from its Federal account - $65,000 went to two of the three school
owners and $15,000 was deposited in the school’s operating account.

A participating school must at all times act with the competency and integrity necessary to qualify
as a fiduciary. Title 34 CFR 668.82(b)(1) states: “In the capacity of a fiduciary – (1) A participating
institution is subject to the highest standard of care and diligence in administering the programs and
in accounting to the Secretary for the funds received under those programs.”

Title IV funds received by institutions must be used for financial aid to eligible students. Title 34
CFR 668.161(b) states: “… funds received by an institution under the title IV, HEA programs are
held in trust for the intended student beneficiaries and the Secretary. … The institution, as a trustee
of Federal funds, may not use or hypothecate (i.e., use as collateral) title IV, HEA program funds for
any other purpose.”

Success Institute’s Federal bank account records contained a deposit of $86,228 in Direct Loan
funds that the school received from the Department on September 5, 1997. Success Institute had
requested only $6,228 in Direct Loans for four students. The additional $80,000 was sent to the
school by mistake. Instead of returning the $80,000 to the Department, two of the school’s three
owners withdrew $65,000 from the Federal account in increments of $15,000, $15,000 and $35,000.
The remaining $15,000 was transferred to the school’s operating account. At the completion of our
audit, Success Institute had neither returned the $80,000 to the Department or its Federal bank
account nor disbursed the funds to eligible students.

Institutional Eligibility Requirement Not Met

Success Institute did not derive at least 15 percent of its total revenue related to tuition and fees from
non-Title IV funds during its fiscal year ending December 31, 1997. As a result, Success Institute
was ineligible to participate in the Title IV programs from January 1 through December 31, 1998.
The school disbursed $2,156,203 of Title IV funds for students during this ineligible period.
Control Number: ED-OIG/A06-90004                                                                                      Page 4


Success Institute reported in its 1997 financial statements that it received 66.6 percent of total
revenue from Title IV sources. Subsequently, in a revised calculation provided to us after our audit
began, Success Institute claimed that 83.31 percent of its total revenue was from Title IV sources.
We determined the revised calculation contained errors and the school received 86.58 percent of
total revenue from Title IV sources.

The Higher Education Act (HEA), Section 481(b), in effect during the audit period stated:

       …the term ‘proprietary institution of higher education’ means a school . . . which
       has at least 15 percent of its revenues from sources that are not derived from
       [HEA, Title IV] funds….

Conversely, no more than 85 percent of total revenue can be derived from Title IV sources. This
institutional eligibility requirement is codified in 34 CFR 600.5(a)(8) and is commonly called the
85 Percent Rule. Department regulations at 34 CFR 600.5(d)(1) provide the following formula
for calculating whether an institution meets the requirement and specify that amounts used in the
formula must be received by the institution during its fiscal year.

                           Title IV, HEA program funds the institution used to satisfy tuition, fees,
                                     and other institutional charges to students.
         ____________________________________________________________________________________

          The sum of revenues 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.


We reviewed Success Institute’s 85 Percent Rule calculation that was reported in its audited
financial statements for fiscal year ended December 31, 1997. Success Institute reported that it
complied with the 85 Percent Rule and received 66.6 percent of its revenue from Title IV
sources. We concluded that Success Institute received 86.58 percent of its revenue from Title IV
sources, and therefore did not meet the institutional eligibility requirement. As a result, the
institution was not eligible to participate in the Title IV programs for the fiscal year beginning
January 1, 1998.

We initially asked the school to provide us with accounting records to support the assertion in its
1997 financial statements that it complied with the requirement to earn at least 15 percent of total
revenue from non-Title IV sources. Success Institute provided us with schedules showing total
revenue of $1,180,367 which included $786,566 of Title IV revenue and $393,801 of non-Title
IV revenue. Later, a school official provided us with a revised 85 Percent Rule calculation. The
official indicated that the amounts initially provided to us and included in the footnotes to its
audited financial statements were overstated by $348,108.
Control Number: ED-OIG/A06-90004                                                                     Page 5


Success Institute’s revised calculation also contained errors. Success Institute failed to include
$38,652 of Title IV revenue received in 1997 and included $25,432 of non-Title IV revenue that
was actually received in fiscal years 1996 or 1998. Table 1 reflects adjustments to the initially
reported 85 Percent Rule calculation.

                                     TABLE 1
        Success Institute and OIG Calculated Percentage of Title IV Revenue
                        Fiscal Year Ended December 31, 1997

                                                                                     Title IV Revenue
                                          Title IV    Non-Title IV      Total
                                                                                    as Percent of Total
                                         Revenues      Revenues        Revenue
                                                                                          Revenue
 School’s Initial Calculation:          $ 786,566    $ 393,801       $1,180,367      66.6%
 School’s Revisions                     ( 93,220)     ( 254,888)      ( 348,108)
 School’s Second Calculation:           $ 693,346    $ 138,913       $ 832,259       83.31%
 OIG Audit Adjustments:
   Revenue Received in 1996 or 1998                    ( 25,432)     ( 25,432)
   Title IV Received but Not Included     38,652                       38,652

 OIG Calculation:                       $ 731,998    $ 113,481       $ 845,479       86.58%


Success Institute received $2,156,203 of Title IV funds, including $819,861 in Federal Pell Grants,
$217,859 in Direct Loans, and $1,118,483 in FFEL funds, during January 1 through December 31,
1998, when it was not eligible .

Lack of Financial Responsibility and Administrative Capability

Success Institute did not demonstrate financial responsibility or the ability to administer
adequately the Title IV programs. Our review disclosed unpaid refunds, incorrectly calculated
and untimely refunds, Title IV funds provided to students who failed to demonstrate ability to
benefit from the educational programs, unreliable or inaccurate accounting records, and
inaccurate reporting of revenue amounts in its financial statement disclosure of the 85 Percent
Rule calculation. Success Institute’s failure to comply with Title IV regulations resulted in
$123,099 of unpaid refunds and unallowable Title IV disbursements.

In order to demonstrate financial responsibility, 34 CFR 668.15 (b)(3)(i) requires an institution to
meet all of its financial obligations including, but not limited to, refunds that it is required to make.
Control Number: ED-OIG/A06-90004                                                                   Page 6


Institutions must also be administratively capable, as set forth at 34 CFR 668.16, which states:

       To begin and to continue to participate in any Title IV, HEA program, an institution
       shall demonstrate to the Secretary that the institution is capable of adequately
       administering that program under each of the standards established in this section.
       The Secretary considers an institution to have that administrative capability if the
       institution — (a) Administers the Title IV HEA programs in accordance with all
       statutory provisions of or applicable to Title IV of the HEA, all applicable
       regulatory provisions prescribed under that statutory authority, and … (d)
       Establishes and maintains records required under this part and the individual Title
       IV, HEA program regulations….

Failure to Make Required Refunds

Success Institute failed to make required refunds totaling $60,189 for 26 of the 51 students due a
refund. The regulations require an institution to establish and implement a fair and equitable refund
policy. This policy requires the institution to make a refund of unearned institutional costs if the
student fails to register, withdraws, drops out, or otherwise fails to complete the program of study
for which the student is charged (34 CFR 668.22). Additionally, regulations require an institution to
make refunds in order to demonstrate financial responsibility [34 CFR 668.15(b)(3)(i)].

Inaccurate Refunds

Success Institute did not always accurately calculate refunds. The school understated refunds for 21
of the 51 students due a refund by a total of $15,526. Errors made by Success Institute included:

•   using an incorrect number of hours attended,
•   understating amounts of Title IV funds received in the refund calculation,
•   using an incorrect institutional charge,
•   excluding money owed to students, and
•   making a mathematical error.

Untimely Refunds

Success Institute did not make timely refunds to the Department or lenders. Federal Pell Grant
refunds totaling $6,349 were made between 5 and 53 days after the 30 days allowed by 34 CFR
668.22. FFEL refunds, totaling $1,767 were made to lenders between 48 and 80 days after the 60
days allowed by 34 CFR 682.607.
Control Number: ED-OIG/A06-90004                                                              Page 7


Lack of Ability to Benefit

Success Institute provided $47,384 in Title IV funds to students who did not demonstrate an
ability to benefit from the education offered by having a high school diploma or its recognized
equivalent. Title 34 CFR 668.141(a) states that, “... a student who has neither a high school
diploma nor its recognized equivalent may become eligible to receive Title IV, HEA program
funds by — (1) Achieving a passing score … on an independently administered test approved by
the Secretary….” Success Institute disbursed Title IV funds to students who did not have a high
school diploma or its recognized equivalent and who did not achieve a passing score on an
approved ability to benefit test.

Inaccurate and Unreliable Accounting Records and Financial Statements
Success Institute’s financial statement disclosure for the 85 Percent Rule calculation contained
overstated and unsupported revenue. After we began our audit, school officials indicated that the
revenue amounts used in the calculation and included in the footnotes to its audited financial
statements were overstated by $348,108.

School officials then provided us with revised revenue amounts that the officials said were based on
amounts recorded on student ledger cards. We found that the revised revenue amounts the school
provided to us also contained errors (see Table 1).

Amounts to Be Returned to the Department and Lenders

Success Institute’s failure to comply with the Title IV regulations resulted in $123,099 of unpaid
refunds and unallowable Title IV disbursements. We determined that $113,886 of the $123,099
occurred during January 1 through December 31, 1998, when Success Institute was not eligible to
participate in the Title IV programs. The remaining $9,213 ($123,099 – 113,886) of unpaid refunds
and unallowable disbursements occurred prior to January 1, 1998, and included $193 in an unpaid
FFEL refund and $9,020 in disbursements for students who failed to demonstrate the ability to
benefit from the educational programs. The $9,213 should be returned to the Department or
lenders.
Control Number: ED-OIG/A06-90004                                                               Page 8



                               RECOMMENDATIONS
We recommend that the Chief Operating Officer for Student Financial Assistance require
Success Institute to:

       1. Return to the Department the $80,000 of Direct Loan funds that were erroneously
          provided to the school in excess of what the school requested and inappropriately
          withdrawn from the Federal account, along with interest on those funds from
          September 5, 1997, through the date that the funds are received by the Department.

       2. Return to the Department or lenders the $2,156,203 of Title IV funds ($819,861 in
          Federal Pell Grants, $217,859 in Direct Loans, and $1,118,483 in FFEL funds)
          received for students during the January 1 through December 31, 1998 ineligible
          period.

       3. Return to the Department or lenders the $9,213 of Title IV funds, including $193 of
          unpaid FFEL refunds and $9,020 ($6,560 in Federal Pell Grants and $2,460 in FFEL
          funds) disbursed for students who did not demonstrate an ability to benefit from the
          education offered.


                                   OTHER MATTERS
Success Institute received $128,759 in Title IV funds for students who enrolled and then
withdrew from school before Success Institute was initially eligible to participate in the Title IV
programs. The Department received an application for participation in the Title IV programs
from Success Institute in December 1996, and provisionally certified the school to participate in
the Title IV programs effective February 26, 1997. Based on information provided in the
application, Success Institute should not have been allowed to begin participating in the Title IV
programs until November 6, 1997. However, we are not questioning the $128,759 of Title IV
funds received by Success Institute because the school’s application did not contain any incorrect
or misleading information.

Title 34 CFR 600.5 states:

       (a) A proprietary institution of higher education is an educational institution
       that…(7) Has been in existence for at least two years …. (b)(1)The Secretary
       considers an institution to have been in existence for two years only if – (i)The
       institution has been legally authorized to provide, and has provided, a continuous
       educational program to prepare students for gainful employment in a recognized
       occupation during the 24 months preceding the date of its eligibility application, ….
       [Emphasis Added]
Control Number: ED-OIG/A06-90004                                                                 Page 9


Although Success Institute was founded in January 1994, the school did not begin providing a
continuous educational program to prepare students for gainful employment until November 6,
1995. Therefore, Success Institute did not complete the 24-month requirement until November 6,
1997. During the period February 26, 1997 to November 5, 1997, when Success Institute was not
eligible to participate, the school received FFEL and Direct Loan funds totaling $423,585, and
Federal Pell Grants totaling $190,879. The school disbursed $128,759 of these funds ($69,798 in
FFEL and Direct Loans and $58,961 in Federal Pell Grants) for students who enrolled and then left
the school before it was eligible to participate in the Title IV programs.

Success Institute provided correct information to the Department in its December 1996 application
to participate in the Title IV programs. The Department used that information to establish the
February 26, 1997 effective date for Title IV participation. As a result, we are not questioning the
$128,759 of Title IV funds that the school received before it was initially eligible to participate in
the Title IV programs.


                                SUBSEQUENT EVENTS
The Department transferred Success Institute to a system of payment by reimbursement on February
3, 2000. On February 10, 2000, the Department’s Southwest Case Management Division conducted
a program review at Success Institute. The review team identified $827,487 in unmade refunds and
ineligible disbursements.

TGSLC notified Success Institute on March 7, 2000, that it had initiated an emergency action to
cease guaranteeing FFEL loans for students attending the school and that it intended to terminate the
eligibility of the school for FFEL loan guarantees effective at the close of business on March 28,
2000. The TGSLC notification stated that the basis for the action was a finding of “…serious
violations of federal financial responsibility and administrative capability requirements…”
identified in an on-site program review conducted during February 28 through March 3, 2000. The
TGSLC review focused on institutional refunds for students who ceased enrollment at Success
Institute. TGSLC noted that refunds were not being made and that “…based on available
information to date, the current liability exceeds $700,000 plus interest.” Success Institute did not
appeal, and the termination became effective on March 28, 2000.

Success Institute ceased providing educational services and closed on March 27, 2000.
Control Number: ED-OIG/A06-90004                                                                Page 10



    SUCCESS INSTITUTE’S COMMENTS TO DRAFT REPORT
Success Institute’s President did not disagree with our conclusion that the school failed to
demonstrate financial responsibility or administrative capability. She also stated that neither she nor
her husband “…withdrew or knowingly accepted money that did not belong to Success Institute.”

However, she disagreed with our conclusion that the school did not comply with the 85 Percent
Rule for the fiscal year ended December 31, 1997. She stated that the original percentage that
included all educational income was revised to exclude income from workshops and other non-
eligible programs. This recalculation resulted in a ratio of 83.31 percent. A copy of the letter from
Success Institute is included as Appendix II to this report.


                        OIG RESPONSE TO COMMENTS
Success Institute’s comments did not persuade us to change our findings or recommendations.

We agree that the school’s revised 85 Percent Rule calculation correctly excluded income from
workshops and other non-eligible programs. However, we reported that the school’s revised
calculation contained other errors. Specifically, the school failed to include $38,652 of Title IV
revenue received in 1997 and included $25,432 of non-Title IV revenue that was actually received
in fiscal years 1996 or 1998. The school’s response to the draft audit report did not address these
errors.

                                      BACKGROUND
Success Institute was founded in January 1994 and operated as a proprietary institution of higher
education in Houston, Texas until March 27, 2000. Success Institute received initial approval to
participate in the Title IV programs in February 1997 and was accredited by the Accrediting
Council for Independent Colleges and Schools. The school initially offered computer
applications workshops. The school later began offering vocational programs in professional
secretary, business office specialist, medical secretary, medical transcriptionist, applied computer
accounting, and word processing. The school also offered vocational workshops in various
computer applications and skills.

During February 27, 1997 through December 31, 1998, Success Institute received nearly $3
million in Title IV funds from the Federal Pell Grant, Direct Loan, and FFEL Programs.
Control Number: ED-OIG/A06-90004                                                            Page 11



              OBJECTIVE, SCOPE, AND METHODOLOGY
The objective of our audit was to determine whether Success Institute administered selected
aspects of the Title IV programs according to Title IV of the Higher Education Act of 1965, as
amended, and applicable Title IV regulations.

To accomplish our objective we obtained background information about the school. We
reviewed 200 randomly selected student files and related records from the universe of 348
students who were enrolled at Success Institute and received financial aid between July 1, 1997
and June 30, 1998. We reviewed Success Institute’s corporate financial statements and the most
recent Title IV compliance audit reports. We also conducted interviews with Success Institute
officials.

We performed an analysis of, and used information extracted from, Success Institute’s student
account ledgers, which were maintained on manually posted ledger cards. The reliability of the
ledger cards was tested by verifying selected data with other sources such as institutional bank
statements and Department disbursement records. To supplement information on the school’s
ledger cards, we also used data applicable to the school that was provided by Financial Aid
Management for Education, Inc. We extracted student specific disbursement information from
the Department’s National Student Loan Data System. We also obtained Title IV funding
information on the school from the Department’s Payment Management System and Grants
Administration and Payment System.

Our audit of the school’s administration of the Title IV programs initially covered the period July
1, 1997 through June 30, 1998. Our audit period was expanded to include the period beginning
February 27, 1997 through June 30, 1998. We reviewed the 85 Percent Rule calculation for the
school’s fiscal year ended December 31, 1997. In addition, we reviewed Success Institute’s
application for eligibility to participate in the Title IV programs. We performed fieldwork at
Success Institute from November 30, 1998 through February 12, 1999. Our audit was performed
in accordance with generally accepted government auditing standards appropriate to the scope of
the review described above.
Control Number: ED-OIG/A06-90004                                                             Page 12



             STATEMENT ON MANAGEMENT CONTROLS
As part of our review, we assessed Success Institute’s management control structure, as well as
its policies, procedures, and practices applicable to the scope of the audit. We assessed the level
of control risk for determining the nature, extent, and timing of our substantive tests. For the
purpose of this report, we assessed and classified the significant management controls into the
following categories:

                       •   Institutional Eligibility
                       •   Student Eligibility
                       •   Title IV disbursements
                       •   Calculation and payment of refunds
                       •   Recording and accounting for Title IV funds.

Because of inherent limitations, a study and evaluation made for the limited purposes described
above would not necessarily disclose all material weaknesses in the control structure. However,
our assessment disclosed weaknesses specifically related to the areas of institutional eligibility,
student eligibility, refunds and record keeping. These weaknesses are discussed in the Audit
Results section of this report.
                                APPENDIX I
         SCHEDULE OF TITLE IV FUNDS TO BE RETURNED BY ISSUE AREA,
                           PROGRAM, AND YEAR
                      SUCCESS INSTITUTE OF BUSINESS



                    AMOUNTS TO BE RETURNED BY ISSUE AREA

Direct Loan Funds Received in Error                                                          $80,000

Title IV Funds Received during Ineligible Period (1/1/98 – 12/31/98)

                  Federal Pell Grants                                  $     819,861
                  Direct Loans                                               217,859
                  FFELP Funds                                              1,118,483
                                                                                           2,156,203


Lack of Financial Responsibility and Administratively Capability

                  FFELP Refunds Not Made                                   $       193
                  Ability to Benefit Not Met – Federal Pell Grants               6,560
                  Ability to Benefit Not Met – FFELP                             2,460
                                                                                                9,213

Total Title IV to be Returned                                                             $2,245,416




             AMOUNTS TO BE RETURNED BY PROGRAM AND YEAR

Federal Pell Grants and Direct Loans

                  1997 Federal Pell Grants                             $         6,560
                  1998 Federal Pell Grants                                     819,861
                  1997 Direct Loans                                             80,000
                  1998 Direct Loans                                            217,859
                  To be Returned to Department                                           $ 1,124,280

FFELP Funds

                  1997 FFELP Funds                                     $       2,460
                  1998 FFELP Funds                                         1,118,676
                  To be Returned to Lenders                                               1,121,136

Total Title IV to be Returned                                                            $ 2,245,416
                                       DATA
                                       DATAINPUT
                                            INPUTSHEET
                                                 SHEET                                                                                 OIG
  OIG
                   OFFCODE:            06            AUDIT TYPE:               A                A C N: A0690004

                                Proj Audits of Selected Postsecondary                                                  2
PROJ MGR#:      980077          Name: Institutions                              AWPI IASD       STATEGIC GOAL #:

                                                                                                                     (1, 2,3)
                                                                        STATE TX
TITLE:            Success Institute of Business
                 FROM                           TO
PERIOD
                 10/1/96                      9/30/98                          AUD SCOPE:       4       PROGRAM OFFICE:
AUDITED:                                                                                                                           3

 DIRECT TIME (Y/N):         Y            JOB STATUS CODE:               6           ENTITY CODE #:        63
     PLANNED START DATE:                                  DATE NEEDED BY
                                         2/1999                                            3/31/99
AUDIT PLAN BUDGET:           (STAFF DAYS)
                                                   AFTER
FY               1ST YR    INTIAL
                                                   SURVEY
                                                                            REVISED              2ND YR            TOTAL        395
                           SURVEY

LEAD AUDITOR:           Emp#: 2375               Name: Vanessa Walters                       CFDA CODE: 84.032      84.063      84.007

                                                                                    FINAL REPORT (Check One)
                         Planned Date             Actual Date
1.   Assignment Start                              11/18/98                        ALTERNATIVE PRODUCT       Code = 5
2.   Planning Conf.        11/18/98                11/18/98                        NO REPORT                       Code = 0
3.   Entrance Conf.        11/30/98                 11/30/98                       ISSUED W/FINDING            X   Code = 1
4.   Survey Complete       1/30/99                  1/15/99
5.   Team Complete         9/3/99                   12/6/99                        ISSUED W/O FINDING              Code = 2
6.   Draft Report           10/30/99                 5/4/00                                                        Code = 4
                                                                                   REPORT CANCEL
7.   Comments Rec’d         6/5/00                  6/22/00
                                                                        PREPARER’S SIGNATURE                                    DATE
8.   Final Report          6/23/00                  8/7/00
                                                                            Approved By:                                         AWP.FRM 2/97
OIG
                                                 DATA INPUT SHEET
            ACN A0690004                                                                                         OIG
                                           (only to be used for finding code 1)
     Questioned Costs
  Number of                    Total $2,245,416
  Findings    1


 Finding
 Number:          $ Amount                 Significant                      Recommendation #     Significant

       1              80,000                  x                                    1                 X

       2          2,156,203                   X                                     2                X

       3               9,213                  X                                     3                X




  Unsupported Costs

      Number of                Total $
      Findings

      Finding
      Number:      $ Amount                   Significant                     Recommendation #     Significant
                                 DISTRIBUTION SCHEDULE
                                 Control Number OIG/A06-90004

                                                                                         Copies

Auditee                                                                                      1

Action Official                                                                              1

         Greg Woods, Chief Operating Officer
         Student Financial Assistance
         Department of Education
         ROB-3, Room 4004
         7th and D Streets, SW
         Washington, DC 20202-5132

Other ED Offices

         General Manager for Schools, Student Financial Assistance                           1

         Chief Financial Officer, Student Financial Assistance                               1

         Director, Case Management & Oversight, Schools, Student Financia l Assistance       1

         Area Case Director, Dallas Case Management Team,
          Case Management & Oversight, Schools, Student Financial Assistance                 1

         General Counsel, Office of the General Counsel                                      1

OIG

         Inspector General                                                                   1
         Deputy Inspector General                                                            1
         Assistant Inspector General for Investigation (A)                                   1
         Assistant Inspector General for Audit (A)                                           1
         Deputy Assistant Inspector General for Audit (A)                                    1
         Director, Student Financial Assistance                                              1
         Regional Audit Offices                                                              6
         Dallas Audit Office                                                                 6

Others

         Texas Guaranteed Student Loan Corporation                                           1
         Texas Workforce Commission                                                          1