oversight

Southwest Texas State University's (SWT's) compliance with the Title IV, Student Financial Assistance, verification requirements.

Published by the Department of Education, Office of Inspector General on 2001-09-28.

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

                      UNITED STATES DEPARTMENT OF EDUCATION
                                       OFFICE OF INSPECTOR GENERAL
                                 1999 BRYAN STREET, HARWOOD CENTER, SUITE 2630
                                            DALLAS, TEXAS 75201-6817
                                      PHONE: (214) 880-3031 FAX: (214) 880-2492




September 28, 2001                                                                              ED-OIG/A06-B0009



Dr. Jerome H. Supple
President
Southwest Texas State University
601 University Drive
San Marcos, Texas 78666-4615

Dear Dr. Supple:

This Final Audit Report (Control Number ED-OIG/A06-B0009) presents the results of our
audit of Southwest Texas State University’s (SWT’s) compliance with the Title IV, Student
Financial Assistance, verification requirements. The objectives of our audit were limited to
determining if SWT completed verification of applicant data and accurately reported verification
results to the Department of Education for the period July 1, 1999, through June 30, 2000.

A draft of this report was provided to SWT. In its response, SWT concurred with the audit
recommendations. We have summarized SWT’s comments after the recommendations. A copy
of the complete response is enclosed with this report.


                                             BACKGROUND
SWT is a public university located in San Marcos, Texas. It received initial approval to
participate in the Title IV, Student Financial Assistance programs on December 1, 1965. The
Commission on Colleges of the Southern Association of Colleges and Schools accredits the
school. SWT offers bachelor degrees in business, education, liberal and fine arts, sciences,
applied arts, and health professions, as well as master and doctoral degrees in various fields.
From July 1, 1999, through June 30, 2000, SWT disbursed almost $52 million in Title IV aid,
including $7.3 million in Federal Pell Grants, $663,624 in Federal Supplemental Educational
Opportunity Grants (FSEOG), $1.3 million in Federal Work-Study, $11.7 million in Federal
Stafford Loans, and $30.9 million in William D. Ford Federal Direct Loans (Direct Loans). The
Department’s Central Processing System (CPS) selected for institutional verification 2,156 of the
SWT’s 3,917 Federal Pell Grant recipients during that year.




     Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Dr. Jerome H. Supple                                                                    Page 2 of 6


                                    AUDIT RESULTS
SWT did not always complete the required verification or report accurate verification results.
We concluded that verification was incomplete for eight (16 percent) of fifty sampled Federal
Pell Grant recipients. SWT disbursed $11,200 in unallowable Title IV aid to the eight recipients.
SWT also incorrectly reported the verification results for five (10 percent) of the fifty sampled
recipients.

Verification Requirements

Verification of information submitted by applicants for Title IV assistance is governed by
Subpart E of Title 34, Code of Federal Regulations (34 CFR), Part 668. Applicants must submit
information on income, family size, and other data to the 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.

Pursuant to 34 CFR § 668.54, schools must require each applicant selected for verification to
complete the verification process, except no school is required to verify more than 30 percent of
its total number of applicants. Schools are required to verify five major data elements reported
by students on their financial aid applications (34 CFR § 668.56). These elements are adjusted
gross income, income tax paid, household size, number enrolled in college, and certain untaxed
income/benefits. Schools and applicants must complete verification by established deadlines or
the applicants forfeit their Federal Pell Grant for the award year, may not receive any other Title
IV disbursements, and must repay to the institution any FSEOG or Federal Perkins Loan
disbursements received. The institution must return to the lender or the Secretary, in the case of
Direct Loans, any Federal Stafford Loan or subsidized Direct Loan proceeds that would
otherwise be payable to the applicants and return to the appropriate program account any Federal
Pell Grant, FSEOG, or Federal Perkins Loan disbursements not repaid by the student.

For the Federal Pell Grant Program, the school has completed verification when it has corrected
the applicant’s data or determined that the application data are correct. Except for the Federal
Stafford Loan and Direct Loan programs, schools are allowed to make an interim disbursement
before verification is completed as long as the school has no reason to believe the application
information is inaccurate. The school must document the verification and have on file the final
and valid federal output document showing the student’s official EFC.

When a school disburses a Federal Pell Grant, it must report the disbursement and the results of
verification to the Department’s Recipient and Financial Management System (RFMS). Schools
use verification status codes to report verification results. Proper reporting of these codes shows
that the verification procedures have been followed and allows the Department to gather
information on the effectiveness of the verification requirements. Verification results do not
have to be reported for loan only students.
Dr. Jerome H. Supple                                                                                         Page 3 of 6


Incomplete Verification

SWT did not complete verification for eight (16 percent) of the fifty sampled recipients primarily
because it did not correct errors identified in the recipients’ applications. The school obtained
the required documents from the recipients that supported verification was performed. The
documents identified errors in the recipients’ applications but SWT did not obtain a valid output
document with an official EFC by submitting the corrected data to the CPS. For example, one
recipient reported on his application $7,681 for both adjusted gross income and federal taxes
paid. SWT obtained a copy of the recipient’s tax return that showed $99 of federal taxes paid.
The school did not correct the federal taxes paid amount, which would have reduced the
recipient’s Title IV eligibility, and disbursed $1,450 in unallowable Federal Pell Grant funds.

School officials agreed that verification for the eight recipients was not completed and that the
application errors should have been corrected. The officials were unable to explain why the
verification was not completed.

Incomplete verification for the eight recipients resulted in SWT disbursing $11,200 in
unallowable Title IV aid, including $7,075 of Federal Pell Grants, $1,500 of FSEOG, and $2,625
of subsidized Federal Stafford Loans. Based on our sample results, we estimate 345 recipients
could have received about $480,000 in unallowable Title IV grants and subsidized loans during
the period July 1, 1999, through June 30, 2000.

Inaccurate Results

SWT also incorrectly reported to the RFMS the verification results for five (10 percent) of the
fifty sampled recipients. SWT reported that it identified errors in verifying the applications for
the five recipients and that it corrected and reprocessed applications for four of the recipients
(SWT reported that the errors for one recipient were not significant enough to require
reprocessing). We determined that the school had obtained documentation for all five recipients
that supported the accuracy of the five major data elements required to be verified. As a result,
the recipients’ applications did not require reprocessing. Although SWT did find and correct
minor errors in other data (such as students’ grade levels), the Department does not require that
data be verified. Finding and correcting errors in data elements not required to be verified and
reporting those corrections as a verification result limits the usefulness of RFMS data for
monitoring the effectiveness of the required verification process.


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

1. Return to the Department $7,075 in Federal Pell Grant and $1,500 in FSEOG funds and to
   the lender $2,625 in subsidized Federal Stafford Loans disbursed for students for whom
   verification was not completed.

      Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Dr. Jerome H. Supple                                                                                         Page 4 of 6



2. Strengthen its management controls to ensure that the required verifications are completed
   and accurate results reported to the Department.

3. Perform a review of recipients who had verification results reported to RFMS and who were
   not included in our audit for award year 1999-00 through the current period and return any
   additional Title IV aid disbursed as a result of the incomplete verification. The amount to be
   returned should include interest and special allowance that the Department paid on the
   subsidized Federal Stafford Loans disbursed.


               SWT’S COMMENTS TO THE DRAFT REPORT
SWT stated that it was in the process of returning the Title IV funds that we identified were
disbursed as a result of incomplete verification. SWT explained that it had completed a review
of a random sample of 200 student files for the 1999-00 award year and identified additional
Title IV funds disbursed as a result of incomplete verification that would be returned. SWT
further noted that in January 2002 it would begin a random sample review of student files for the
2000-01 award year. SWT’s response also described the corrective actions taken to strengthen
its management controls.


                OBJECTIVES, SCOPE AND METHODOLOGY
The objectives of our audit were limited to determining if SWT completed the verification of
student financial aid applications and reported accurate verification results to the Department.
Our audit did not include a review of other Title IV compliance requirements. We selected SWT
for audit because the SWT reported it had identified and corrected errors in 89 percent of Federal
Pell Grant recipients’ applications that were verified.

To accomplish our objectives, we obtained background information about SWT. We interviewed
SWT officials and reviewed the school’s policies and procedures relating to verification. We
reviewed SWT’s financial aid files for 50 randomly selected recipients from the universe of
2,156 Federal Pell Grant recipients who were selected for verification in award year 1999-00
(July 1, 1999, through June 30, 2000). The sample represented 2.3 percent of the universe.

We relied on computer-processed data obtained from the RFMS for background information and
to select a random sample of Federal Pell Grant recipients for review. We performed limited
tests of the data to verify reliability by comparing the data to information in SWT’s student files.
Based on the results of these tests, we concluded that the computerized data was sufficiently
reliable to formulate conclusions associated with the objectives of our audit.




      Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Dr. Jerome H. Supple                                                                                        Page 5 of 6


Our audit covered the period from July 1, 1999, through June 30, 2000. We performed fieldwork
during November 27 through December 1, 2000, at SWT in San Marcos, Texas. We had our exit
conference on November 30, 2000. 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 SWT’s management controls, 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: (1) completion and documentation of verification, and (2) reporting verification
results to the Department.

Because of inherent limitations, a study and evaluation made for the limited purposes described
above would not necessarily disclose all material weaknesses in management controls. However,
our assessment disclosed weaknesses related to completing verification and reporting verification
results to the Department. These weaknesses are discussed in the AUDIT RESULTS section of
this report.


                             ADMINISTRATIVE 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
                Student Financial Assistance
                U.S. Department of Education
                ROB-3, Room 4004
                7th and D Streets, SW
                Washington, DC 20202-5132

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.

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.




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