oversight

Audit of the University of San Francisco.

Published by the Department of Education, Office of Inspector General on 2002-07-24.

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

                               UNITED STATES DEPARTMENT OF EDUCATION

                                                  OFFICE OF INSPECTOR GENERAL



                                                        JUL 24 2002
MEMORANDUM

TO 	           Greg Woods
               Chief Operating Officer
               Federal Student Aid


FROM
               Assistant Inspector General
                 for Audit Services

SUBJECT: 	 Final Audit Report
           UNIVERSITY OF SAN FRANCISCO'S ADMINISTRATION OF THE
           WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
               Control Number ED-OIGIA06-B0007


Attached is our subject report presenting findings resulting from our audit of University of San
Francisco.

In accordance with the Department's Audit Resolution Directive, you have been designated as
the action official responsible for resolution of the findings in this report.

If you have any questions or wish to discuss the contents of this report, please contact Sherri
Demmel, Regional Inspector General for Audit, Dallas, Texas, at 214-880-3031. Please refer to
the audit control number in all correspondence reJating to this report.


Attachment




                                       400 MARYLAXD AVE., S.W. WASEIl\"GTON. D.C. 20202-1510 


               Our mission. is to ensure equal access to education. and to promote educational excellence throughout the Nation. 

                          UNITED STATES DEPARTMENT OF EDUCATION

                                              OFF1CE OF     I~SPECTOR     GENE1<AL



                                                    JUL 24 2002


                                                                              Control Number ED-OIG/A06-80007


The Reverend Stephen A. Privett, SJ.
President
University of San Francisco
2130 Fulton Street
San Francisco, CA 94117

Dear Father Privett:

This Final Audit Report (Control Number ED-OIGI A06-B0007) presents the results of our
limited-scope audit of the University of San Francisco (University). The objectives of our audit
were to determine if the University reconciled and accounted for William D. Ford Federal Direct
Loan Program (Direct Loan) funds monthly, and closed Direct Loan accounts in accordance with
program requirements. Our review focused on Direct Loan Program Years 1997-1998 through
1999-2000.

A draft of this report was provided to the University. In its response, the University generally
agreed with our findings and some of our recommendations. The University stated that it was
aggressively addressing the closure of the open loan years. The University did not concur with
our recommendation that it be placed on reimbursement for all Title IV funds until all Direct
Loan funds are accounted for and it demonstrates that it can administer the Direct Loan Program
in accordance with all applicable requirements. We have summarized the University'S
comments after the Recommendations. A copy of the complete response is enclosed with this
report.


                                                BACKGROUND
The Department determines a Direct Loan school's origination status under requirements in 34
c.F.R. § 685.402. Schools may participate under three origination options: school origination
option 1, school origination option 2, and standard origination. The University operated under
option 2, which means that the University originated Direct Loan records, handled promissory
notes, and drew down funds. The three origination options are summarized below.




                                    400   MA~YU'l.KD   AVE., S.W. WASEIKGTON, D.C. 20202 1510

            Our mission is to ensure equal access to education and to promote educational exceUence throughout the Nation.
Rev. Stephen A. Privett                                                                Page 2 of 10




     Direct Loan Origination Options
                                               Standard Origination Origination
     Responsibility                           Origination Option 1   Option 2
     Create loan origination records              X          X          X
     Transmit loan origination records to LOC      X         X          X
     Prepare promissory note                     LOC         X          X
     Obtain completed/signed promissory note     LOC         X          X
     Send promissory note to LOC                  n/a        X          X
     Calculate need for Direct Loan funds        LOC       LOC           X
     Request Direct Loan funds from GAPS         LOC       LOC          X
     Receive funds from GAPS                      X          X          X
     Disburse loan funds to borrowers             X          X          X
     Create disbursement records                  X          X          X
     Transmit disbursement records to LOC         X          X          X
     Perform reconciliation                       X          X          X
                     LEGEND
                     X   = school’s responsibility
                     LOC = Loan Origination Center’s responsibility
                     n/a = not applicable


The definitions of the three origination options, in 34 C.F.R. § 685.102, provide that a Direct
Loan school must reconcile “on a monthly basis.” The Direct Loan School Guide recommends
steps for schools to follow to prepare for the monthly reconciliation process. Those monthly
reconciliations must identify unbooked loans, missing promissory notes, and the need to return
any excess cash.

Direct Loan schools also are required to close their accounts at the end of each program year.
The Direct Loan School Guide stipulates that schools must close out each program year with an
ending cash balance of zero. Closeout occurs when all internal accounts balance to zero and the
ending cash balance is zero with the Department. A successful closeout should be the result of
careful monthly reconciliations, and DLB 00-24 states that the annual processing deadline for
closing out a Direct Loan program year does not relieve schools from compliance with the
regulatory 30-day reconciliation requirement. For Program Year 1997-1998, the Department
published, in 64 FR 36748 (July 7, 1999), a notice indicating that institutions participating in the
Direct Loan Program had to submit all electronic loan records and promissory notes for that
award year to the Secretary by August 2, 1999. For subsequent award years, the directive to
submit those records was contained in bulletins posted on the Federal Student Aid (FSA) web
site and sent to each institution participating in the Direct Loan Program. DLB 00-24 required
schools to close their Program Year 1998-1999 accounts by July 31, 2000. DLB 01-23
addressed closeout for Program Year 1999-2000, and required schools to either confirm or
appeal the ending cash balances shown in the Department’s records as of August 10, 2001. The
schools were required to confirm or appeal those balances by September 28, 2001.
Rev. Stephen A. Privett 	                                                             Page 3 of 10



The University is a private, Jesuit university located in San Francisco, California. The Western
Association of Schools and Colleges - Senior Colleges and Universities (WASCSR) accredits the
school. The University received initial approval to participate in Title IV Student Financial
Assistance programs on December 1, 1965, and began participating in the Direct Loan Program
on April 1, 1995. The University received over $124.6 million in Direct Loan funds for the three
program years ending June 30, 2000.


                                     AUDIT RESULTS
The University did not reconcile and account for Direct Loan funds monthly and did not close
Direct Loan accounts in accordance with program requirements. As of January 31, 2001, the
University had annual ending unaccounted for cash balances totaling approximately $25.8
million for the last three Direct Loan program years. The potential interest cost to the Federal
government associated with the unaccounted for cash balances totaled approximately $1.8
million as of August 31, 2001. By June 7, 2002, the unaccounted for cash balance had been
reduced to $1,189,345. The unaccounted for cash balance occurred because the University did
not make corrections to all rejected loan records, follow up on lost or rejected promissory notes,
match Direct Loan records with Department records, and provide adequate oversight to ensure
funds were reconciled.

In order for a loan to be reconciled, it must be booked. A loan is booked when the Direct Loan
Origination Center (LOC) receives and accepts a loan origination record; the borrower signs a
promissory note and the LOC accepts the promissory note; and a first disbursement record is
transmitted to and accepted by the LOC. A promissory note can be rejected for various reasons,
including:

   • 	 missing data (signature, Social Security Number, name, address, phone number, driver’s
       license, citizenship status, loan amount requested, references, employer information, loan
       period, or date of birth)
   • 	 promissory note alterations without appropriate borrower initials
   • 	 amount disbursed greater than promissory note amount

According to 34 C.F.R. § 685.301(d), schools are required to submit loan origination records,
promissory notes, and disbursement records to the LOC within 30 days of the initial and
subsequent disbursements.

Schools are also required under 34 C.F.R. § 685.300(b) to comply with all requirements
established by the Department relating to the Direct Loan Program. As stated in 34 C.F.R. §
685.300(b)(6), a school must “provide assurances that the school will comply with requirements
established by the Secretary relating to student loan information with respect to loans made
under the Direct Loan Program.” As provided in 34 C.F.R. § 685.102, schools must reconcile
Direct Loan funds “on a monthly basis.” The Department also establishes deadlines for the
submission of all records and promissory notes related to each Direct Loan program year. For
example, 64 FR 36748 (July 7, 1999) specifically stated that, for Direct Loan Program Year
Rev. Stephen A. Privett                                                              Page 4 of 10


1997-1998, any “records and promissory notes that have been rejected and remain incomplete or
inaccurate by August 2, 1999 may result in institutional, rather than Federal, responsibility for
the loan or portion of the loan.” The Department requires schools to close out each program year
with an ending cash balance of zero. A school can be required to change its loan origination
status. As stated in 34 C.F.R. § 685.402(c)(2), “The Secretary may require a school to change
origination status if the Secretary determines that such a change is necessary to ensure program
integrity or if the school fails to meet the criteria and performance standards established by the
Secretary.”

On August 24, 2001, according to 1999-2000 data obtained from the LOC, the University still
had 37 loans that were unbooked because the promissory notes for those loans were lost. The
total value of those loans was $201,655. Data obtained from the LOC for 1998-1999 showed
that the University still had 680 unbooked loans on August 24, 2001. The total value of those
loans was $665,177. Of that amount, 96 percent ($638,651) pertained to problems with
promissory notes. As a result of not reconciling on a monthly basis, the University did not close
any of the three Direct Loan program years with a cash balance of zero as required.

Because the University did not reconcile monthly for Program Years 1997-1998 through 1999-
2000 (July 1, 1997, through June 30, 2000) and return the excess cash balances, we calculated
the potential interest cost to the federal government and taxpayers to be approximately $1.8
million as of August 31, 2001. We calculated that cost by applying the Current Value of Funds
Rate, which was five percent for the period July 1, 1997, through December 31, 2000 and six
percent for the period January 1, 2001, through December 31, 2001, to the ending cash balances.
The unaccounted for cash balances and the potential cost to the government are detailed in the
following table:


                                 Ending                Ending            Potential Interest
                            Unaccounted for        Unaccounted for            Cost to
                              Cash Balance          Cash Balance           Government
                                  As of                 As of                  As of
       Program Year         January 31, 2001       August 31, 2001       August 31, 2001
         1997-1998             $    41,767           $         0            $    37,129
         1998-1999             $ 3,286,326           $ 2,435,599            $ 660,496
         1999-2000             $22,445,487           $ 4,298,547            $ 1,141,489
           Total               $25,773,580           $ 6,734,146            $ 1,839,114


By August 31, 2001, the University closed out Program Year 1997-1998 by returning a final
balance of $41,767 to the Department. The Department sent the University a letter dated January
12, 2001 and asked the University to return the $41,767 cash balance no later than February 28,
2001. The University returned the cash balance on April 10, 2001. Therefore, we calculated the
Program Year 1997-1998 interest cost only through April 9, 2001. As of June 7, 2002, the
University had also reduced its total ending cash balances for Program Years 1998-1999 and
1999-2000 from about $25.8 million to about $1,189,345.
Rev. Stephen A. Privett 	                                                              Page 5 of 10



                                  RECOMMENDATIONS
We recommend that the Chief Operating Officer for Federal Student Aid:

1. 	 Require the University to immediately either account for the $1,189,345 in unaccounted for
     funds or return the funds to the Department of Education plus any interest.

2. 	 Require the University to assume liability for all lost promissory notes identified by the LOC,
     including $201,655 for Program Year 1999-2000.

3. 	 Change the University’s loan origination status to standard origination.

4. 	 After all Direct Loan funds are accounted for, retain the University on standard origination
     for the Direct Loan Program until such time that the University demonstrates it can
     administer the Direct Loan Program in accordance with all applicable requirements.

5. 	 Require the University to develop management controls and procedures to ensure that it
     reconciles with the Department on a monthly basis.


        THE UNIVERSITY’S COMMENTS ON THE DRAFT REPORT 

                      AND OIG’S RESPONSES 

The University stated that, as of December 2001, it had accounted for all but $4.15 million of the
Direct Loan funds in question and hoped to complete the reconciliation and closeout process by
May 1, 2002. We agree that the University has made progress reconciling and accounting for the
Direct Loan funds that it received for Program Years 1998-1999 and 1999-2000. As of June 7,
2002, the total unaccounted for amount was $1,189,345--$556,888 for Program Year 1998-1999
and $632,457 for Program Year 1999-2000.

After evaluating the University’s comments and obtaining additional information at the Loan
Origination Center, we modified Recommendations 1, 3 and 4. We modified the amount in
Recommendation 1 from $6.7 million to $1.2 million. We also modified Recommendations 3
and 4 to recommend that the University’s loan origination status be changed to the standard
option, and that the University remain at the standard origination status until such time that the
University demonstrates it can administer the Direct Loan Program in accordance with all
applicable requirements. However, the University’s comments and reconciliation efforts did not
persuade us to change our findings. A summary of the University’s comments and our responses
follow.
Rev. Stephen A. Privett                                                               Page 6 of 10



Recommendation 1. Require the University to immediately either account for the
$6,734,146 in unaccounted for funds or return the funds to the Department of Education
plus any interest.

   University’s Comments.

   The University stated that it presently can and has always been able to internally account for 

   all cash drawn down for the years referenced in the draft report. The University also stated 

   that it never has had or maintained an excess cash balance as defined in 34 C.F.R. § 668.166. 

   In addition, the University stated that it continues to work with the LOC to provide data 

   required by the LOC. 


   OIG’s Response.
   This audit focused on whether the funds drawn down were properly accounted for with the
   Department. Before and during our audit period, large cash balances were unaccounted for
   and unreconciled with the Department’s records long after the 3-day excess cash periods, the
   30-day reconciliation periods, and the year-end closeout periods had expired. The failure of
   an institution to reconcile and account for Direct Loan funds with the Department creates a
   presumption that the unaccounted for funds are excess and should have been returned to the
   Department. Furthermore, by delaying reconciliation, there is a danger that some accounts
   will not be reconciled as borrowers may no longer be available to provide missing
   documentation. Delays in reconciling a loan may also adversely affect timely collection
   efforts when a borrower enters repayment. Finally, there is potential harm to students when
   schools do not reconcile timely, because the loans cannot enter repayment until they are
   reconciled and for unsubsidized loans, the interest is capitalized until the loan is reconciled,
   resulting in greater indebtedness to the student. The same is true for subsidized loans that are
   not reconciled until after the student’s grace period.

   To assist in the reconciliation process, the University automatically received the 732 Detail
   Report data from the LOC. Additionally, based on additional work conducted at the Loan
   Origination Center after we received the University’s comments, we determined that LOC
   personnel provided technical assistance on several occasions to the University, including site
   visits by the Reconciliation Manager and a Reconciliation Accountant, and telephonic
   contact. For example, during the period April 21, 1997, through April 30, 2002, LOC
   Customer Service Representatives recorded 277 instances of contact between the LOC and
   the school. Additional technical assistance was provided by one of the Department’s Client
   Account Managers (CAM) located in San Francisco, who also made site visits to the school
   and communicated with University officials by telephone. However, despite the 732 detail
   information and the technical assistance provided by LOC and Department personnel, the
   University did not reconcile its Direct Loan records with the Department’s records because
   the University did not provide adequate oversight to ensure the reconciliation was
   accomplished.
Rev. Stephen A. Privett                                                                  Page 7 of 10



Recommendation 2. Require the University to assume liability for all lost promissory notes
identified by the LOC, including $201,655 for Program Year 1999-2000.

   University’s Comments.

   The University stated that it is confident that it will be able to replace notes not received or 

   misplaced by the LOC, and said that it has identified 39 notes for 1999-2000 for which the 

   LOC cannot locate a copy. 


   OIG’s Response.
   The Chief Operating Officer for Federal Student Aid should ensure that all notes are properly
   accounted for or require the University to pay the money back to the Department. In order
   for a Direct Loan to a student to be recognized as a valid loan, it must be “booked.” A loan
   cannot be booked until the institution submits to the LOC, and the LOC accepts, three types
   of documents: a loan origination record, a promissory note, and a loan disbursement record.

Recommendation 3. Place the University on reimbursement for all Title IV programs until
all Direct Loan funds are accounted for.

   University’s Comments.
   The University stated that it can and has accounted for all Direct Loan funds disbursed to its
   students, and disagreed strongly that reimbursement is warranted because it would create a
   considerable hardship for the institution and its students and because of the University’s
   “record of stewardship of Title IV funds.”

   OIG’s Response.

   We have changed recommendation three so that the University’s origination status be 

   changed to standard origination. Standard origination is the equivalent of reimbursement for 

   the Direct Loan program. 


Recommendation 4. After all Direct Loan funds are accounted for, retain the University on
reimbursement for the Direct Loan Program until such time that the University
demonstrates it can administer the Direct Loan Program in accordance with all applicable
requirements.

   University’s Comments.
   The University stated that it continually revises and reconsiders its internal processing for
   Direct Loans, and stated that the school is now in the process of implementing a system that
   will automatically require LOC acknowledgment and acceptance of promissory notes before
   individual disbursements are made by its internal system. The University expects that system
   change to be effective with Summer 2002 disbursements.

   OIG’s Response.
   We recognize the University’s efforts to improve its system of accounting for Direct Loan
   funds. However, changes that might be effective for Summer 2002 disbursements do not
   change the fact that the University had large unreconciled cash balances for the three years of
Rev. Stephen A. Privett 	                                                            Page 8 of 10


   our audit period. We still maintain that Direct Loan funds were not properly accounted for.
   Direct Loan funds must be properly accounted for, not only with the drawdown and
   disbursement process, but also with the reconciliation and closeout process. We modified
   this recommendation to include a recommendation that the Department retain the University
   at the standard origination status for the Direct Loan Program until such time that the
   University demonstrates it can administer the Direct Loan Program in accordance with all
   applicable requirements. We also removed the reference to reimbursement in the
   recommendation. Although the University is making changes and improvements, being
   retained on standard origination will help to provide assurance to the Department that the
   changes and improvements will be effective.

Recommendation 5. Require the University to develop management controls and
procedures to ensure that all internal Direct Loan records are current and accurate and
that those records match the Department's Direct Loan records on a monthly basis.

   University’s Comments.

   The University stated that it is “in the process of transferring managerial oversight of 

   monthly reconciliations from the Office of Financial Aid to the Accounting Office. . . . 

   Effective immediately the University will dedicate additional staff from the Accounting 

   Office to ensure closure of the open years.” 


   OIG’s Response.
   The University is responsible for reconciling its accounts, whether the records are processed
   electronically or manually. If the University had complied with the requirements and
   reconciled on time, the manual process would not have been necessary. The University must
   ensure that its internal Direct Loan records are current and accurate and that those records
   match the Department’s Direct Loan records on a monthly basis. Placing and retaining the
   University on reimbursement and at the standard origination status will also help to
   strengthen management controls.


             OBJECTIVES, SCOPE, AND METHODOLOGY
The objectives of our audit were to determine if the University reconciled and accounted for
Direct Loan funds monthly and closed Direct Loan accounts in accordance with program
requirements. To accomplish our objectives, we:

    • 	 Interviewed Department, LOC and University personnel to determine the reconciliation
        process.

    • 	 We compared the Department’s ending cash balances against the University’s ending
        cash balances, for Direct Loan Program Years 1997-1998 through 1999-2000, to
        determine the magnitude of Direct Loan funds that were unreconciled at the end of the
        program years.
Rev. Stephen A. Privett 	                                                            Page 9 of 10


    • 	 We reviewed the LOC’s records from April 1997 through April 2002 to determine
        whether technical assistance was provided to the University to assist them in the
        reconciliation process.

    • 	 We interviewed LOC and University personnel to determine whether on-site technical
        assistance was provided to the University.

We relied on computerized cash balance data applicable to the University from the
Department’s Loan Origination System. We visited the LOC during the week of March 19,
2001, and began our fieldwork at the University of San Francisco on March 26, 2001. We held
an exit meeting with University officials on March 29, 2001. We also performed additional
work at the LOC from April 30, 2002, through May 7, 2002. The audit was conducted in
accordance with generally accepted government auditing standards appropriate to the audit
scope described above.


            STATEMENT ON MANAGEMENT CONTROLS
As part of our audit, we assessed the system of management controls, policies, procedures, and
practices applicable to the University’s administration of the Direct Loan Program. Our
assessment was performed to determine the level of control risk for determining the nature,
extent, and timing of our substantive tests to accomplish our audit objectives. For the purpose of
this report, we assessed and classified the Direct Loan reconciliation process as a significant
control.

Because of inherent limitations, a study and evaluation made for the limited purpose described
above would not necessarily disclose all material weaknesses in the management controls.
However, our assessment disclosed management control weaknesses that adversely affected the
University's ability to reconcile its Direct Loan records. Those weaknesses are discussed in the
Audit Results section of this report.
Rev. Stephen A. Privett                                                     Page 10 of 10




                          ADMINISTRA TIVE MATTERS 

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:

       Mr. Greg Woods, Chief Operating Officer 

       Federal Student Aid 

       U.S. Department of Education 

       Union Center Plaza· 

       830 1st Street, NE 

       Room 11201 

       Washington, DC 20202 


Office of Management and Budget Circular A-50 directs Federal agencies to expedite the
resolution of audits by initiating timely action on the findings and recommendations contained
therein. Therefore, we request receipt of your comments within 30 days.

Statements that management practices need improvements, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of ]nspector General.
Detennination of corrective action to be taken will be made by the appropriate Department of
Education officials.

In accordance with the Freedom of Infonnation Act (5 C.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 infonnation contained therein is not subject to exemptions in the Act.

If you have any questions or if you wish to discuss the contents of this report, please contact
Sherri Demmel, Regional Inspector General for Audit, Dallas, Texas, at 214-880-3031. Please
refer to the control number in all correspondence related to this report.


                                             Sincerely,




                                             Assistant Inspector General
                                               for Audit Services

Enclosure
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                                                                                                              Enclosure

January 18,2002 	                           Sent via Federal Express Overnight


Shem L. Demme!, Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
1999 Bryan Street Suite 2630
Dallas, TX 75201-6817


Dear Ms. Demmel:

Thank you for this opportunity to comment on the Draft Audit Report (Control Number
ED-OIG/A06-B0007). Our comments focus on the recommendations that appear on
Page 4 of the report.

The most recent 732 Cash Summary Reports for the years 1998/1999 and 1999/2000
indicate the progress that has been made in reconciling with the Loan Origination
Center since the effective date of your draft report. Please see the table inserted in
our comments on Recommendation #5. In addition, for 1998/99, all information
relative to the cash balance has been forwarded to the Loan Origination Center for
their manual processing. For 1999/2000, the issues that prevented the booking of
loans by the LOC have all been identified and data to complete their records is
being transmitted in an orderly fashion and on a weekly basis. The problems related
to this open year are largely the result of the fee rate change and the inability of the
LOC system to record loan advances and changes in a correct and orderly manner
for those schools for which summer is the lead rather than the trailing term.

In regard to your recommendations:

   1. 	 Require the University to immediately either account for the $6,734,146 in
        unaccounted for funds or return the funds to the Department of Education plus
        any interest .

           • The University presently can and has always been able to internally
           account for all cash drawn down for the years referenced in the draft
           report. In accordance with our practice and procedures, Direct Loan funds
           are drawn down from the Department of Education only after
           disbursements of University funds have been made to eligible student
           borrowers. For 1998/1999 and 1999/2000, all eligible borrowers were paid
           with USF funds prior to Direct Loan funds being drawn down.



        fo:uit F.(iucatiofl ,~'inn} J \ii
                                                                                   Enclosure


      • We disagree with the finding that the University has ever had or
      maintained an excess cash balance as defined in Section 668.166.

      • We continue to work with the Loan Origination Center to provide them
      with the data they require in the format they can use to bring their records
      into line with ours. If the lOC is able to take and process the data as we
      provide it, we anticipate that all outstanding balances will be accounted
      for by May 1, 2002.

2. 	 Require the University to assume liability for all lost promissory notes identified by
     the LOC, including $201,655 for Program Year 1999/2000.

      • Though not required to do so, the University presently prints and collects a
      school copy of the Direct loan Promissory note. We are confident that we
      will be able to replace notes not received or misplaced by the loon
      Origination Center.

      • In the matter of the notes for 1999/2000 referenced in recommendation
      #2, the University presently has identified thirty-nine (39) notes for which the
      LOC cannot locate a copy.
          • Four (4) notes have been sent and acknowledged, and the loans have
          been booked.
          • Eleven (11) notes had been transmitted and acknowledged but are
          now missing; the LOC has requested that we provide our copies.
          • Copies of the remaining twenty-four (24) notes wrll be retrieved from
          our archives and sent at the same time.

3. 	 Place the University on reimbursement for all Title IV programs until all Direct
     Loan funds are accounted for.

      • The University can and has accounted for all the Direct Loan funds
      disbursed to its students. We are presently waiting for the Loan Origination
      Center to complete the processing of data and promissory notes sent to
      them.

      • Our student participation in the Direct Loan program is substantial and our
      loan volume considerable. The Campus-Based Title IV programs are vital to
      the aid applicants who benefit from them. Being placed on reimbursement
      would create a considerable hardship for the institution and its students
      and. because of our record of stewardship of Title IV Funds. we feel strongly
      that reimbursement is not warranted.

4. 	 After all Direct Loan funds are accounted for, retain the University on
     reimbursement for the Direct Loan Program until such time that the UniverSity
                                                                            Enclosure


  demonstrates it can administer the Direct Loon Program in accordance with all
  applicable requirements .

         • The University continually revises and reconsiders its internal processing
         for the Federal Direct Student Loon Programs.
                • We have developed a new report that allows us to compare
                internal and external reports in an accessible format and on a
                regular basis.
                • We have converted existing internal reports to identify possible
                data problems.
                • We have retrained stoff to make them more aware of the critical
                need to audit daily processing.
                • We are in the process of implementing a system that will
                automatically require LOC acknowledgment and acceptance of
                promissory notes before individual disbursements are made by our
                internal system. We expect this change in our system to be
                effective with summer 2002 disbursements.
                • Effective immediately, monthly reconciliations of Direct Loan
                funds will be reviewed by senior employees in the Accounting
                Office .
         • The University has always drawn down Direct Loan funds subsequent to
         disbursement rather than prior to disbursement. The University can and
         has accounted for all the Dffect Loan funds disbursed to its students.

S. 	 Require the University to develop management controls and procedures to
     ensure that all internal Direct loan records are current and accurate and that
     those records match the Department's Direct Loan records on a monthly basis.

      • As noted above the University continually revises and reconsiders its
      internal processing for the Federal Direct Student Loan Programs. This is
      done in response to changes in Department policy and procedure, and in
      response to our identified need for internal change. We are presently in the
      process of transferring managerial oversight of monthly reconciliations from
      the Office of Financial Aid to the Accounting Office .

      • The University has been actively and aggressively addressing the closure of
      the open loan years for the past two years. We have devoted the work
      efforts of one full~tjme staff member to the resolution of these problems. The
      "unaccounted for" cash balances referenced in the draft report and
      illustrated below have been reduced on a regular and on-going basis over
      the past two years. Effective immediately the University will dedicate
      additional staff from the Accounting Office to ensure closure of the open
      years.
                                                                                          Enclosure




..
 ~~~J&:~:~~           .   41,729,184.00   42,246,243.00   40,811,269.00   40,976,168.00   22,980,256.00

                           196,068.00     8,207,321.00    27,757,100.00


                           295,495.00     7,983,142.00    27,757,100.00


                            41,767.00     3,494,350.00    22,907,211.00


                              0.00        2,924,369.00    22,398,719.00


                              0.00        2,435,599.00    20,322,344.00


                              0.00        2,127,339.00    4,292,625.00


                              0.00        1,853,991.00    2,296,128.00     755,378.00      437,482.00




     The University has benefited from the cooperation and assistance of both the
     Loan Origination Center stoff and our Regional DOE staff but the process of
     resolution has been extended by the LOC' s inability to process electronic
     transmissions for years prior to 1999/2000. The manual process is lobor-intensive
     and time-consuming for the University's financial aid staff and for the LOC. We
     are looking forward to closing all prior years as quickly as possible so that we can
     devote our staff time to the daily monitOring of current year rejects and
     discrepancies.

     If you have questions concerning our comments or if there is further information
     we can provide, please contact Susan Murphy, Associate Dean of Academic
     Services, at (415) 422-2620 or Murphy@usfca.edu or Michael Lochhead, Associate
     Vice-President for Business & Finance, at (415) 422-6472 or lochhead@usfco.edu




        or/es E. Cross, Vice President
     Business & Finance
                               REPORT DISTRIBUTION LIST
                              CONTROL NO. ED-OIG/A06-B0007

Auditee                                              ED Action Official

The Reverend Stephen A. Privett, S.J., President     Mr. Greg Woods
University of San Francisco                          Chief Operating Officer
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San Francisco CA 94117

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