oversight

International Business College's Administration of Title IV Student Financial Assistance Programs.

Published by the Department of Education, Office of Inspector General on 2001-03-28.

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

   INTERNATIONAL BUSINESS COLLEGE'S
       ADMINISTRATION OF TITLE IV
STUDENT FINANCIAL ASSISTANCE PROGRAMS



                                 FINAL AUDIT REPORT




                               Control Number: ED-OIG/A06-A0003
                                          March 2001




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 ............................................................................................. 2

        VERIFICATION NOT COMPLETED FOR ALL SELECTED STUDENTS................... 2
             Verification Requirements ...................................................................................... 2
             Required Verification Not Completed .................................................................... 4

        DIRECT UNSUBSIDIZED LOANS DISBURSED FOR DEPENDENT STUDENTS
         WITHOUT DOCUMENTATION OF EXCEPTIONAL CIRCUMSTANCES ............... 5
             Eligibility for Direct Unsubsidized Loans .............................................................. 5
             Exceptional Circumstances Not Documented ............................................. 6

        TITLE IV FUNDS DISBURSED FOR OTHER INELIGIBLE STUDENTS ................... 6
              Student Eligibility Requirements ............................................................................ 6
              Students Did Not Meet Eligibility Requirements ................................................... 7

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

IBC'S COMMENTS TO THE DRAFT REPORT ................................................ 7

OIG'S RESPONSE TO IBC'S COMMENTS ....................................................... 8

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

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

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

APPENDIX
                   EXECUTIVE SUMMARY

International Business College (IBC), a proprietary school headquartered in Lubbock, Texas, did
not adequately administer the Title IV student financial assistance programs. IBC
inappropriately disbursed: (1) $368,825 in Title IV funds for 146 of 363 students, who were
required to verify information on their financial aid applications, without documenting that the
required verifications were completed; (2) $74,385 in William D. Ford Federal Direct
Unsubsidized Loan Program (Direct Unsubsidized Loan) funds for 32 of 49 dependent students
without documenting the exceptional circumstances that precluded the students’ parents from
obtaining Federal PLUS Loans; and (3) $17,825 for two students who did not have a high school
diploma, a General Education Development (GED) certificate or did not pass an independently
administered test, and one student who already had a baccalaureate degree. In total, IBC
inappropriately disbursed $461,035 in Title IV funds from July 1, 1998 through June 30, 1999.

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

1. Return to the Department $201,996 in Federal Pell Grant funds, $7,500 in Federal
   Supplemental Educational Opportunity Grants (FSEOG), and $159,329 in Federal Direct
   Subsidized Loan funds disbursed for students for whom verification was not completed.

2. Return to the Department $74,385 in Direct Unsubsidized Loans disbursed for dependent
   students for whom the required documentation of exceptional circumstances was not
   obtained.

3. Return to the Department $8,763 in Federal Pell Grant funds and $9,062 in Federal Direct
   Loans disbursed for the three ineligible students.

4. Strengthen its management controls to ensure all school staff follow the requirements for
   completing the verification process, documenting the eligibility of dependent students for
   Direct Unsubsidized Loans, and determining the eligibility of students for Title IV aid.

IBC did not agree with our findings and recommendations. IBC submitted additional
documentation with its response to our draft report. We determined that the additional
documentation submitted by IBC for our verification finding was unreliable. We have not
changed our conclusions for the verification finding. With regard to our finding of IBC not
documenting exceptional circumstances for dependent students, we reduced the amount of Direct
Unsubsidized Loan funds that IBC should return to the Department by $4,823 to $74,385. We
have paraphrased the school’s response and provided additional OIG comments after the
Recommendations section of this report. A copy of the school’s response is included as an
Appendix to this report. Copies of the exhibits that were included with the response are
available on request.
Control Number: ED-OIG/A06-A0003                                                             Page 2



                                    AUDIT RESULTS
International Business College (IBC) did not adequately administer the Title IV student financial
assistance programs. IBC inappropriately disbursed $461,035 in Title IV funds from July 1,
1998 through June 30, 1999 -- $368,825 for students for whom verification was not completed,
$74,385 in Direct Unsubsidized Loan funds for dependent students without documentation that
their parents would likely be precluded by exceptional circumstances from borrowing from the
Federal PLUS Program, and $17,825 for other ineligible students.


                   VERIFICATION NOT COMPLETED FOR ALL
                           SELECTED STUDENTS

IBC disbursed $368,825 in Title IV funds from July 1, 1998 through June 30, 1999, for 146
students without documenting that the students completed the required verification of their Title
IV application data. Verification ensures that student application information and eligibility
determinations are correct. In order for verification to be complete, institutions must obtain
documentation from students to verify five major data elements. If students chosen for
verification do not provide the requested documentation, the students forfeit their Federal Pell
Grant for the award year. Further, institutions must not disburse Federal Stafford Loans and
Federal Direct Subsidized Loans for students who have not completed the required verification.

Verification Requirements

Verification of information submitted by applicants for Title IV assistance is governed by the
Higher Education Act (HEA) of 1965, as amended, and Subpart E of Title 34, Code of Federal
Regulations, Section 668 (34 CFR § 668). Applicants must submit information on income,
family size, and other data to the Central Processing System (CPS). The CPS uses the
information to determine each applicant’s expected family contribution (EFC) and Title IV
eligibility. To ensure the information is correct, the CPS selects certain applications for
verification based on edits specified by the Secretary.

Title 34 CFR § 668.54 calls for institutions to require each applicant selected for verification to
complete the verification process, except no institution is required to verify more than 30 percent
of its total number of applicants. An application the school chooses to verify on its own does not
count toward the 30 percent threshold. If the total number selected is less than 30 percent of the
institution’s total applicants, the institution must verify all selected applicants.
Control Number: ED-OIG/A06-A0003                                                               Page 3


Title 34 CFR § 668.56 requires institutions to verify five major data elements reported by
students on their financial aid applications:

               •   Adjusted gross income
               •   U.S. income tax paid
               •   Household size
               •   Number enrolled in college
               •   Certain untaxed income/benefits

Except for the Federal Stafford Loan Program and Federal Direct Subsidized Loan Program, an
institution is allowed to make an interim disbursement before verification is completed as long as
the institution has no reason to believe the application information is inaccurate. If an institution
makes an interim disbursement prior to the student completing the verification process, the
institution is liable for the disbursement if the student fails to verify his or her application
information. Title 34 CFR § 668.60 provides that the institution must require the applicants to
submit the verification documents before a specified deadline. The deadline for completing the
award year 1998-99 verification process was August 31, 1999.

For the Federal Pell Grant program, the institution has completed verification when the student
has corrected the data or the institution has determined that the application data were correct.
The institution must document the verification and have on file the final and valid federal output
document showing the student’s official EFC. If an applicant does not complete verification, the
applicant forfeits the Federal Pell Grant for the award year and the institution must repay to the
Department any funds disbursed.

For the Federal Work-Study, FSEOG, Federal Stafford Loan Program, and Federal Direct
Subsidized Loan Program, the institution has completed verification when the applicant has
submitted all requested documentation to the institution. The school must also have on file an
output document that shows the student’s application data was processed through the CPS at
least once. If an applicant fails to provide the requested documentation, the institution must not:

•   disburse additional FSEOG funds to the applicant (funds already disbursed must be repaid by
    the institution),
•   certify a Federal Stafford Loan application or originate a Federal Direct Subsidized Loan, or
•   deliver Federal Stafford Loan or Federal Direct Subsidized Loan proceeds to the applicant.

When an institution disburses a Federal Pell Grant, it must report the disbursement and the
student’s verification status to the Department. According to the Department’s Verification
Guide, proper reporting shows that the verification procedures have been followed and allows
the Department to gather information on the effectiveness of the verification requirements.
Control Number: ED-OIG/A06-A0003                                                               Page 4


The administrative capability standards in 34 CFR § 668.16 also require institutions to have a
system to identify and resolve discrepancies in the information that the institution receives from
different sources with respect to a student’s application for financial aid. Specifically, 34 CFR
§ 668.16 (f) states:

       In determining whether the institution’s system is adequate, the Secretary
       considers whether the institution obtains and reviews-
        (1) All student aid applications… [and]
        (2) Any documents, including any copies of State and Federal income tax
       returns, that are normally collected by the institution to verify information
       received from the student or other sources….

Required Verification Not Completed
IBC was required to verify application data for 363 students (25 percent of its total applicants)
who were selected for verification for award year 1998-99 (July 1, 1998 through June 30, 1999).
We reviewed the files for all 363 students and found that IBC could not document that 146
students completed the verification process. In addition, IBC did not report the correct
verification status code to the Department for 141 of the 146 students.

The 146 students included:

•   34 students for whom there was no evidence of verification. The students’ files did not
    contain a Federal income tax return or any other documentation that showed IBC verified the
    required data elements. IBC reported the students had completed verification and that
    application data for 32 of the students was accurate. IBC correctly reported that it had not
    completed verification for the remaining two students, but it did not return the Title IV funds
    disbursed to them.

•   80 students for whom there was evidence that some but not all of the required application
    data were verified. The students’ files contained some but not all of the documentation
    needed to verify household size, number in college, certain untaxed income/benefits, adjusted
    gross income, and federal income taxes paid. IBC reported that it had completed verification
    and that application data submitted for 78 students was accurate. IBC correctly reported that
    it had not completed verification for the remaining two students, but it did not return the Title
    IV funds disbursed to them.

•   32 students for whom the verification process identified a discrepancy that should have been
    corrected. IBC collected the required verification documents (for example, income tax
    returns ), but did not make the needed corrections to the students’ application data or obtain
    final and valid Federal output documents for the students that had the correct official EFC.
    For example, a student’s Institutional Student Information Record (the Federal output
    document) showed $30,000 in family income, while the student’s tax return showed an
    adjusted gross income of $88,471. The student’s file did not contain any explanation for the
Control Number: ED-OIG/A06-A0003                                                              Page 5


   difference in income. IBC did not require the student to report the correct income to the CPS
   and inappropriately disbursed $8,977 in Title IV aid for the student. IBC reported that it had
   completed the verification and that application data for 31 students was accurate. IBC
   correctly reported that it had not completed verification for the remaining student, but it did
   not return the Title IV funds disbursed to the student.

IBC inappropriately disbursed $368,825 in Title IV funds for the 146 students during the 1998-
99 award year.

IBC had adequate written procedures for verifying application data that its financial aid directors
were required to follow. IBC officials could not explain why the procedures were not followed.


          DIRECT UNSUBSIDIZED LOANS DISBURSED FOR
        DEPENDENT STUDENTS WITHOUT DOCUMENTATION
              OF EXCEPTIONAL CIRCUMSTANCES


IBC disbursed $74,385 in ineligible Direct Unsubsidized Loans to dependent students without
documentation that their parents would likely have been precluded by exceptional circumstances
from borrowing from the Federal Direct PLUS or Federal Family Education Loan PLUS
(Federal PLUS) programs. The $74,385 represents the amount of Direct Unsubsidized Loans in
excess of the students’ eligible loan amount.

Eligibility for Direct Unsubsidized Loans

Title 34 CFR § 685.203 (c)(1)(ii) states: "In order for a dependent undergraduate student to
receive this additional loan amount the financial aid administrator must determine that the
student’s parent likely will be precluded by exceptional circumstances from borrowing under the
Federal Direct PLUS Program or the Federal PLUS Program and the student’s family is
otherwise unable to provide the student’s expected family contribution. The financial aid
administrator shall … document the determination in the school’s file."

Exceptional circumstances are defined as circumstances that: "[ i]nclude but are not limited to
circumstances in which the student’s parent receives only public assistance or disability benefits,
the parent is incarcerated, the parent has an adverse credit history, or the parent’s whereabouts
are unknown.” A parent’s refusal to borrow a Federal PLUS Loan or Direct PLUS Loan does
not constitute “exceptional circumstances.” (34 CFR § 685.203 (c)(1)(iii))
Control Number: ED-OIG/A06-A0003                                                            Page 6


Exceptional Circumstances Not Documented

IBC disbursed Direct Unsubsidized Loans to 32 dependent students without documentation of
exceptional circumstances. We reviewed files for all 49 dependent students who received Direct
Unsubsidized Loans for award year 1998-99 and determined that IBC inappropriately disbursed
$74,385 in Direct Unsubsidized Loan funds for the 32 students.

The institution’s independent auditor also reported this problem in its compliance attestation
examination of IBC’s administration of the Title IV programs for the year ended June 30, 1998.
The auditor reported that all 11 dependent students tested obtained Direct Unsubsidized Loans
and that the institution was unaware that the students’ parents were eligible for Federal Direct
PLUS Loans. At that time, IBC agreed to correct the problem.

We found other instances that demonstrated IBC was aware of the requirement that only
dependent students with exceptional circumstances were eligible for Direct Unsubsidized Loans.
For example, IBC would certify a Direct Unsubsidized Loan for a dependent student and a
Federal Direct PLUS Loan for the student’s parents. Then when the Federal Direct PLUS Loan
was received, the school would refund the Direct Unsubsidized Loan.

Although IBC was aware of the Direct Unsubsidized Loan requirements, the school continued to
disburse the loans to dependent students without documenting exceptional circumstances. IBC
officials stated that during the 1998-99 award year, the institution used only Federal Direct
PLUS Loans and under that system only parent borrowers (not the school) were notified that
Federal Direct PLUS Loans were denied. IBC officials stated that the school had stopped using
Federal Direct PLUS Loans and had begun using Federal PLUS Loans. IBC’s Federal PLUS
Loan lender sends denial letters to both the parent borrower and the institution.


                   TITLE IV FUNDS DISBURSED FOR OTHER
                           INELIGIBLE STUDENTS

IBC disbursed $17,825 in Title IV funds for three students who were not eligible for the aid.

Student Eligibility Requirements

Title 34 CFR § 668.32 states: "A student is eligible to receive Title IV, HEA program assistance
if the student – … (c)(1) For purposes of the Federal Pell Grant and FSEOG programs, does not
have a baccalaureate or first professional degree; and…(e)(1) Has a high school diploma or its
recognized equivalent; (2) Has obtained … a passing score specified by the Secretary on an
independently administered test…."
Control Number: ED-OIG/A06-A0003                                                             Page 7


Students Did Not Meet Eligibility Requirements

IBC disbursed $14,825 in Title IV funds for two students who did not have a high school
diploma, a GED certificate and who did not pass an ability-to-benefit test. Documents in the
students’ files from a Texas State agency showed the students failed the GED test and the files
contained no evidence of an ability-to-benefit test or scores.

IBC also disbursed $3,000 in Federal Pell Grant funds to a student who was ineligible for the
funds because the student had a Bachelor of Science degree.

The institution provided no explanation for the inappropriate disbursements of Title IV funds for
these three ineligible students.


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

1. Return to the Department $201,996 in Federal Pell Grant, $7,500 in FSEOG, and $159,329 in
   Federal Direct Subsidized Loan funds disbursed for students for whom verification was not
   completed.

2. Return to the Department $74,385 in Federal Direct Unsubsidized Loans disbursed for
   dependent students without documentation of exceptional circumstances.

3. Return to the Department $8,763 in Federal Pell Grant funds and $9,062 in Federal Direct
   Loans disbursed for ineligible students.

4. Strengthen its management controls to ensure all school staff follow the requirements for
   completing the verification process, documenting the eligibility of dependent students for
   Federal Direct Unsubsidized Loans, and determining the eligibility of students for Title IV
   aid.


             IBC’S COMMENTS TO THE DRAFT REPORT
IBC disagreed with most of our conclusions and recommendations. A copy of the letter from
IBC is included as an Appendix to this report. Exhibits that were included with the letter are
available on request.

IBC has not had an opportunity to review 14 students identified in the audit results section of the
report. IBC contended that it had reviewed verification documents for 66 of the 132 students and
concluded that there was no change in the information originally submitted by these students.
Control Number: ED-OIG/A06-A0003                                                              Page 8


For the other 66 students that were reviewed by IBC, the school stated that for nine of the
students, “IBC strongly believes the information was previously in the student’s files and that the
information, once obtained, will [sic] cause any changes to be made in the EFC or eligibility. It
is anticipated that the missing income tax information will be received from IRS within the next
two weeks.” For the remaining students the school stated that it, “[h]as completed verification
and obtained additional information on 57 students .… In a few cases, IBC found that the
students were not eligible and that all Title IV funds should be returned.” Based on its review of
the verification documents for 132 students, IBC agreed that it should return $47,075 to the Title
IV programs for 36 students.

Concerning the Direct Unsubsidized Loans disbursed to students without documentation of
exceptional circumstances, IBC agreed with our determinations for 12 of 23 students and
disagreed with our determination for the remaining 11. Based on its review of the 23 students,
IBC calculated a liability of $20,667. IBC has not had an opportunity to review the remaining 11
students discussed in the Audit Results section of the report.

Regarding the three students that did not meet eligibility requirements, “IBC is still attempting to
collect information evidencing eligibility based on ability to benefit from the test publisher…”
for two students.


                 OIG'S RESPONSE TO IBC'S COMMENTS
We reviewed IBC’s statement that verification was now complete for 123 of the 132 students
identified in IBC’s response. With respect to the first group of 66 students, IBC stated that it had
completed verification and that all required information had been verified, and no changes in
student awards were required. For 50 of these 66 students, IBC submitted copies of the same
incomplete documentation we examined on site.

For the remaining 57 students, IBC stated that verification had been completed and that
additional information obtained for 21 of the students resulted in no required changes to either a
student’s EFC or Title IV award. IBC agreed to changes and liabilities with respect to 36
students in this group.

We reviewed the additional documentation submitted by IBC for these 57 students. Based on
our review, we concluded that the additional documentation submitted by IBC was unreliable.
None of the documentation submitted by IBC established that IBC had completed verification in
a timely manner as required. Therefore, we have not altered our finding that IBC improperly
disbursed aid without verification, and continue to recommend that IBC return $368,825 in Title
IV funds disbursed for students who did not timely complete the verification process.

IBC agreed that some students inappropriately received a Direct Unsubsidized Loan.
Additionally, IBC was able to provide PLUS Loan denial letters on the parents of two students
and we reduced our questioned costs by $4,823. Even though IBC agreed with our
Control Number: ED-OIG/A06-A0003                                                                Page 9


determinations on 12 students, it did not necessarily agree to refund the amounts that we
identified. For example, we believe IBC should return $7,230 to the Direct Loan account for one
of the students. IBC agreed with the finding but only agreed to a liability of $4,992. We
recommend that IBC return to the Department $74,385 in Direct Unsubsidized Loans.

We have not changed our conclusions on the three ineligible students and we continue to
recommend that IBC return $17,825 in Title IV funds disbursed for the three ineligible students.

IBC did not respond to our recommendation that it strengthen its management controls to ensure
all staff follow the requirements for completing the verification process, documenting the
eligibility of dependent students for Direct Unsubsidized Loans, and determining the eligibility
of students for Title IV aid.


                                      BACKGROUND
The IBC campus in Lubbock, Texas, was opened in April 1984 as a branch of International
Business College, Inc., El Paso, Texas. The Lubbock campus became freestanding in December
1987 while under the ownership of International Business College, Inc. Ownership was
transferred in July 1989 to International Business College, Lubbock, Inc. Between May 1990
and October 1998, International Business College, Lubbock, Inc., opened four branch campuses
located in Sherman, Denton, Midland, and McKinney, Texas.

IBC received initial approval to participate in Title IV programs on July 31, 1984. The
Accrediting Council for Independent Colleges and Schools accredits the school. Among the
vocational programs offered by the institution are legal assistant, court reporting, legal secretary,
administrative assistant, medical office specialist, computerized accounting specialist,
computerized office specialist, and network operations technician.

From July 1, 1998 through June 30, 1999, IBC disbursed approximately $4.8 million of Federal
Pell Grant, FSEOG, Federal Work-Study, and Federal Direct Loan funds.


               OBJECTIVE, SCOPE AND METHODOLOGY
The objective of our audit was to determine if IBC administered the Title IV student financial
assistance programs in accordance with the HEA and implementing regulations. We reviewed
(1) institutional and program eligibility and (2) selected administrative and compliance
requirements including student eligibility, the verification process, Title IV disbursements and
refunds.
Control Number: ED-OIG/A06-A0003                                                            Page 10


To accomplish our objective, we obtained background information about the school. We
reviewed IBC’s records for 50 randomly selected students from the universe of 1,480 students
who received Title IV aid from July 1, 1998 through June 30, 1999. Based on our review of
IBC’s records for the 50 randomly selected students, we expanded our review to include all 363
students who were selected for verification and all 49 dependent students who received Direct
Unsubsidized Loans. We obtained and reviewed data from the Department’s National Student
Loan Data System (NSLDS), Payment Management System, and Grants Administration and
Payment System. We tested the reliability of computerized ledger cards by verifying selected
data with other sources such as canceled checks, other student records, and data obtained from
NSLDS. We concluded that the computerized information was sufficiently reliable for the
purposes of our audit. We reviewed IBC’s fiscal years 1997 and 1998 compliance audit reports.
We also conducted interviews with IBC officials.

Our audit covered the institution’s administration of the Title IV programs from July 1, 1998
through June 30, 1999. We performed fieldwork from November 29, 1999 through March 2,
2000, at IBC campuses in Lubbock, Midland, Denton, Sherman, and McKinney, Texas. From
October through December 2000, we performed our analysis of verification and other documents
provided by the school in response to our draft report. Our audit was performed in accordance
with generally accepted government auditing standards appropriate to the scope of the review
described above.


            STATEMENT ON MANAGEMENT CONTROLS
As part of our review, we assessed IBC’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 purposes 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

Due to 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 related to student eligibility determinations and Title IV
disbursements. These weaknesses are discussed in the AUDIT RESULTS section of this report.
                                 DISTRIBUTION SCHEDULE
                               Control Number: ED-OIG/A06-A0003

                                                                                        Copies

Auditee                                                                                     1

         Mr. Kirk Williams, President
         International Business College

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

         Chief of Staff, Office of the Secretary                                            1

         Director, Budget Service, Office of the Under Secretary                            1

         General Manager for Schools, Student Financial Assistance                          1

         Chief Financial Officer, Student Financial Assistance                              1

         Director, Case Management & Oversight, Schools, Student Financial 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

Office of Inspector General

         Inspector General                                                                  1
         Deputy Inspector General                                                           1
         Assistant Inspector General for Investigation                                      1
         Assistant Inspector General for Audit                                              1
         Deputy Assistant Inspector General for Audit                                       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