oversight

Los Angeles City College's Compliance with the Title IV, Student Financial Assistance, Verification Requirements.

Published by the Department of Education, Office of Inspector General on 2001-11-14.

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

Dr. Mary Spangler                                                               Page 2 of 6



                                    AUDIT RESULTS
LACC did not always complete the required verification or report accurate verification results.
We concluded that verification was incomplete for 12 (24 percent) of 50 sampled Federal Pell
Grant recipients. LACC disbursed $14,072 in unallowable Title IV aid to the 12 recipients.
LACC also incorrectly reported the verification results for all 50 (100 percent) of the 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 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 Federal Supplemental Educational
Opportunity Grant (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 expected family contribution.

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. Mary Spangler                                                               Page 3 of 6



Incomplete Verification

LACC did not complete verification for 12 (24 percent) of the 50 sampled recipients. The school
began the verification process for all 12 recipients, but failed to obtain the required
documentation for nine of the recipients and did not correct errors identified in the applications
for the remaining three recipients. For example, the school obtained documentation from one
recipient that supported the adjusted gross income and taxes paid, but the school did not obtain
documentation to support the recipient’s untaxed benefits, number in college, or the number in
the household. Another recipient reported on his application that he made $19,480 in adjusted
gross income, paid the exact same amount in taxes, and received $2,366 in earned income credit.
Documentation provided by the student showed that he paid only $2,366 in taxes and did not
receive an earned income credit. LACC did not correct the application and disbursed $1,416 in
unallowable Federal Pell Grant funds.

School officials agreed that verification for the 12 recipients was not completed and that the
application errors should have been corrected. The incomplete verification resulted in LACC
disbursing $14,072 in unallowable Federal Pell Grant funds.

Inaccurate Results

LACC also reported incorrect verification results to the RFMS for all 50 sampled recipients. For
48 of the recipients, LACC reported that it did not verify the recipients’ applications. We
determined that LACC began the verification process for the 48 recipients and should have
reported that verification was not completed for 12 recipients and verification was completed for
36 recipients. For the remaining two recipients, LACC reported that it completed verification
and determined that the first recipient’s application contained only minor errors, which were not
corrected, and the second recipient’s application contained errors that were corrected. We
determined that LACC should have reported that it corrected the application for the first recipient
and found the application for the second recipient to be accurate.

LACC agreed that the verification results reported to the Department were incorrect. The school
had not entered a verification status code for each recipient when it began using the new
EDExpress software to process Title IV aid and transmit data to the RFMS. The school’s failure
to enter a code caused the software to default to a verification status code indicating that
verification was not performed, which was then transmitted to the RFMS. The school was
unable to explain why it entered incorrect verification status codes for the two sampled
recipients. Correct reporting would have prevented LACC from obtaining Title IV aid for the 12
recipients for whom verification was not completed. Reporting inaccurate verification results
also limits the usefulness of RFMS data for monitoring the effectiveness of the required
verification process.
Dr. Mary Spangler                                                                Page 4 of 6



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

1. Return to the Department $14,072 in Federal Pell Grant funds disbursed to students for
   whom verification was not completed.

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.


  LACC’S COMMENTS TO THE DRAFT REPORT AND OIG’S
                   RESPONSE
LACC concurred with recommendation numbers one and two. In its response, LACC included a
check payable to the Department of Education for the $14,072 of unallowable Federal Pell Grant
disbursements. The response also described the corrective actions LACC has taken to strengthen
its management controls.

LACC did not concur with recommendation number three because of the “tremendous workload
to review all verified recipient files for both fiscal years.” LACC’s response stated that it had
requested its auditor “to perform an audit on the verification requirements for 2000-2001 . . . .”
We have not changed our recommendation. As an alternative to performing a 100 percent
review of recipients who had verification results reported for the 1999-00 year, LACC may want
to consider a review and return of unallowable Title IV aid based on a statistically valid sample
of recipients for that year. For the 2000-01 year, LACC’s proposal to have its auditor perform
the review would address our recommendation if the review included all recipients (or a
statistically valid sample of recipients) who had verification results reported during that year and
LACC returned all unallowable Title IV aid identified.


              OBJECTIVES, SCOPE AND METHODOLOGY
The objectives of our audit were limited to determining if LACC 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
LACC for audit because the school reported that it only verified 7 of the 624 applications
selected for verification in award year 1999-00.
Dr. Mary Spangler                                                              Page 5 of 6



To accomplish our objectives, we obtained background information about the school. We
interviewed school officials and reviewed the school’s policies and procedures relating to
verification. We reviewed LACC’s financial aid files for 50 randomly selected recipients from
the universe of 624 Federal Pell Grant recipients who were selected for verification in award
year 1999-00 (July 1, 1999, through June 30, 2000). The sample represented eight percent of the
universe. The sample size did not provide a sufficient level of precision for us to recommend a
refund of the sample estimate.

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 LACC’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 audit covered the period from July 1, 1999, through June 30, 2000. We performed fieldwork
during February 12-15, 2001, and we conducted an exit meeting on February 15, 2001, at LACC
in Los Angeles, California. 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 LACC’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.
                               DISTRIBUTION SCHEDULE
                               Control Number OIG/A06-B0012

                                                                                   Copies

Auditee                                                                                1
      Dr. Mary Spangler, President
      Los Angeles City 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
      Deputy Secretary, Office of the Deputy Secretary                                 1
      Under Secretary, Office of the Under Secretary                                   1
      Assistant Secretary, Office of Intergovernmental and Interagency Affairs         1
      Director, Office of Public Affairs                                               1
      General Manager for Schools, Student Financial Assistance                        1
      Chief Financial Officer, Student Financial Assistance                            1
      Director, Case Management and Oversight, Student Financial Assistance            1
      Area Case Director, Dallas Case Management Team
       Case Management and Oversight, 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 Analysis and Inspections                        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 Regional Office                                                          6

Others
         California Student Aid Commission                                             1
         Western Association of Schools and Colleges – Community/Junior Colleges       1