oversight

Gretna Career College's Administration of the Title IV Student Financial Assistance Programs.

Published by the Department of Education, Office of Inspector General on 2002-12-18.

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

       GRETNA CAREER COLLEGE’S 

 ADMINISTRATION OF THE TITLE IV STUDENT 

    FINANCIAL ASSISTANCE PROGRAMS



                                 FINAL AUDIT REPORT 





                                            ED-OIG/A06-C0018 

                                              December 2002 



Our mission is to promote the efficiency,                        U.S. Department of Education
effectiveness, and integrity of the                                Office of Inspector General
Department’s programs and operations.                                            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.
                       UNITED STATES DEPARTMENT OF EDUCATION 

                                         OFFICE OF INSPECTOR GENERAL 

                                   1999 BRYAN STREET, HARWOOD CE~TER, SUITE 2630 

                                               DALLAS, TEXAS 75201-6817 

                                        PHONE: (214) 880-3031 FAX: (214) 880-2492 





Mr. Nick Randazzo, President
Gretna Career College
1415 Whitney Avenue
Gretna, LA 70053-2436

Dear Mr. Randazzo:

This is our final audit report, GRETNA CAREER COLLEGE'S ADMINISTRATION OF
THE TITLE IV STUDENT FINANCIAL ASSISTANCE PROGRAMS (Control Number
ED-OIG/A06-C0018). The report incorporates the comments you provided in response to a draft
report that was provided to you. If you have any additional comments or infonnation 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:

                 Ms. Theresa S. Shaw, Chief Operating Officer 

                 Federal Student Aid 

                 Union Center Plaza, Room-1l2G 1 

                 830 First Street, NE 

                 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 Infonnation Act (5 U.S.c. § 552), reports issued by the
Office of Inspector General are made available, if requested, to members of the press and general
public to the extent information contained therein is not subject to exemption in the Act.

Please refer to the above audit control number in all correspondence relating to this report.


                                                         Sincerely,


                                                         ,J)1tt~ I. tOgw~_
                                                        Sherri L. Demmel
                                                        Regional Inspector General
                                                        for Audit Services


Enclosure


     Our mission is to promote the efficiency, effectiveness, and integrity of the Department's programs and operations
                                      TABLE OF CONTENTS 


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


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


  FINDING NUMBER 1 – GCC DID NOT COMPLY WITH THE 90 PERCENT RULE ..........3 

      Proprietary Schools Are Required to Generate at Least 10 Percent of Their 

       Revenue from Non-Title IV Sources .................................................................................3 

      GCC Could Not Support Its 90 Percent Rule Calculation...................................................4 

      Title IV Funds Received by GCC from July 1, 2000, through June 31, 2001.....................5 

  RECOMMENDATIONS..............................................................................................................6 

  GCC’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE ...........................6 

      Medical Center ....................................................................................................................6 

      Day Care Center ..................................................................................................................7 


  FINDING NUMBER 2 – GCC NEEDS TO RETURN ADDITIONAL TITLE IV FUNDS
    FOR STUDENTS WHO WITHDREW. ..................................................................................8 

      State Licensing Agency Requires GCC to Take Attendance...............................................8 

      GCC Used Incorrect Last Dates of Attendance to Calculate Title IV Return Amounts......9 

  RECOMMENDATIONS..............................................................................................................9 

  GCC’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE .........................10 


BACKGROUND ...........................................................................................................................11 


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


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


APPENDIX A − Explanation for Amounts Excluded from the 90 Percent Rule Calculation
APPENDIX B – GCC’s Narrative Comments to the Draft Report
ED-OIG/A06-C0018                                                                                         	Page 1



                                  EXECUTIVE SUMMARY
Gretna Career College (GCC), located in Gretna, Louisiana, did not qualify as an eligible
institution for participation in the Student Financial Assistance programs authorized by Title IV
of the Higher Education Act of 1965, as amended (HEA). GCC was ineligible to participate in
the Title IV programs from July 1, 2000, through June 30, 2001, because it received more than
90 percent of its revenue from Title IV sources during its fiscal year that ended June 30, 2000.
GCC received $1,381,790 in Title IV funds during the year it was an ineligible institution.

GCC also understated the amount of Title IV aid it was required to return by $9,978 for 9 of 35
sample students who withdrew during the period from July 1, 2000, through December 31, 2001.
GCC was required by its State licensing agency to take attendance. As a result, GCC had to use
the last dates of attendance (LDA) in calculating the amount of Title IV funds to return for
students who withdrew. The amount of Title IV funds returned was understated because GCC
used incorrect LDA in its calculations.

We recommend that the Chief Operating Officer for Federal Student Aid require GCC to:

1. 	 Return to the Department $1,383,470 in Title IV funds ($1,381,790 received from July 1,
     2000, through June 30, 2001, for its failure to meet the 90 Percent Rule during the year
     ended June 30, 2000, and $1,6801 for its failure to return to the Department the correct
     amount of Title IV funds for students who withdrew).

2. 	 Identify all students not included in our audit for whom incorrect LDAs were used by
     comparing sign-in sheets with the students’ individual attendance records; determine if
     additional Title IV funds need to be returned by using the correct LDAs; return any
     additional Title IV funds identified; and have GCC’s Independent Public Accountant verify
     the school's determinations for accuracy.

3. 	 Strengthen its controls relating to the 90 Percent Rule calculation and documenting
     attendance for use in calculating the amount of Title IV funds to return.

GCC provided narrative comments and attachments containing documentation in response to our
draft report issued in August 2002. GCC agreed that it had made some errors in the 90 Percent
Rule calculation, but it disagreed that those errors caused it to not meet the 90 Percent Rule.
GCC’s comments did not persuade us to change our overall conclusion and recommendations
regarding the 90 Percent Rule. GCC agreed to strengthen its controls for documenting
attendance and discussed the steps it had taken. GCC also agreed that it had used an incorrect
LDA to calculate the Title IV return amount for three of our sample students who withdrew.
However, GCC disagreed that it had used an incorrect LDA in its calculations for 12 of our

1
  These are unduplicated questioned dollars. GCC failed to return $9,978 in Title IV funds for students who
withdrew, of which $1,680 were disbursed after the ineligible year that ended June 30, 2001. The remaining $8,298
($9,978 less $1,680) were disbursed during the ineligible year and are included in our finding on the 90 Percent
Rule.
ED-OIG/A06-C0018                                                                       Page 2

sample students. Based on our analysis of GCC’s comments and documentation provided, we
eliminated six sample students from our finding. GCC’s comments and documentation did not
persuade us to change our conclusion that GCC used incorrect LDA in its calculations for the
remaining six students. We changed our finding to conclude that GCC understated the amount
of Title IV funds that it was required to return by $9,978 for 9 of 35 sample students who
withdrew.

GCC’s narrative comments are included in their entirety in Appendix B. We summarized GCC’s
comments and provided our response following each finding. The attachments have been
provided to the Department of Education Action Official.
ED-OIG/A06-C0018                                                                            Page 3


                                   AUDIT RESULTS
GCC did not comply with the 90 Percent Rule and understated the amount of Title IV funds it
was required to return for students who withdrew. Except for the issues described in our
findings, we concluded that GCC met other program, institutional, and student eligibility
requirements reviewed, including requirements for eligibility of short-term training programs,
Title IV disbursements, use of professional judgment, and financial responsibility.


                          FINDING NUMBER 1 

            GCC DID NOT COMPLY WITH THE 90 PERCENT RULE



GCC was ineligible to participate in the Title IV, Student Financial Assistance programs from
July 1, 2000, through June 30, 2001, because it received over 90 percent of its revenue from
Title IV sources during its fiscal year that ended June 30, 2000. GCC received $1,381,790 of
Title IV funds during the ineligible year. GCC reported in the notes to its June 30, 2000, audited
financial statements that it met the 90 Percent Rule with 84 percent of its revenue from Title IV
sources. We determined that the school could not support all of the amounts included in its 90
Percent Rule calculation. The calculation also included non-Title IV cash revenue from
ineligible sources. Based on our analysis, GCC received 91.07 percent of its cash revenue from
Title IV sources for that year.

Proprietary Schools Are Required to Generate at Least 10 Percent of Their Revenue from
Non-Title IV Sources

Section 102(b) of the HEA specifies that a proprietary institution of higher education is “a school
that . . . has at least 10 percent of the school’s revenues from sources that are not derived from
funds provided under title IV, as determined in accordance with regulations prescribed by the
Secretary." Conversely, no more than 90 percent of total revenue may be derived from Title IV
programs. This institutional eligibility requirement became effective October 1, 1998, and is
codified in 34 CFR § 600.5(a)(8). Pursuant to 34 CFR § 600.5(d)(2), “[a]n institution must use
the cash basis of accounting when calculating the amount of title IV, HEA program funds in the
numerator and the total amount of revenue generated by the institution in the denominator of the
fraction contained in paragraph [34 C.F.R. § 600.5] (d)(1)….”
ED-OIG/A06-C0018                                                                                Page 4

The formula at 34 CFR § 600.5(d)(1) is as follows:

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


          The sum of revenues including title IV, HEA program funds generated by the
        institution from tuition, fees, and other institutional charges for students enrolled
        in eligible programs as defined in 34 CFR 668.8; and activities conducted by the
           institution, to the extent not included in tuition, fees, and other institutional
         charges, that are necessary for the education or training of its students who are
                                 enrolled in those eligible programs.


GCC Could Not Support Its 90 Percent Rule Calculation

GCC’s audited financial statements for its fiscal year ended June 30, 2000, showed that the
school met the 90 Percent Rule with 84 percent of its revenue from Title IV sources. GCC
provided us with the amounts it used in the calculation (see Table). We found that GCC did not
have records to support all of the amounts used in the calculation or had included ineligible
amounts. After excluding the revenues that GCC could not support and the ineligible amounts
as explained in the APPENDIX to this report, we determined that 91.07 percent of GCC’s
revenue was from Title IV sources.
ED-OIG/A06-C0018                                                                                 Page 5



                                             TABLE
            90 Percent Rule Calculations for July 1, 1999, through June 30, 2000
                                       GCC Calculation        Excluded      OIG Calculation
         Title IV Revenue
         PELL                                     $511,977                           $511,977
         FSEOG                                      35,142                              35,142
         DIRECT LOANS                              620,344                            620,344
          Total Title IV                        $1,167,463                          $1,167,463
         Non-Title IV Revenue
         Medical Center                            $48,061         $9,141             $38,920
         JTPA                                       12,076                              12,076
         Rental Income                                2,059         2,059                  -0-
         Student Payments                           46,628                              46,628
         Pvt. Registration Fee                      16,179                              16,179
         Gain on Sale of Assets                     29,394         29,394                  -0-
         Federal Work Study                         11,463         11,463                  -0-
         FSEOG-ACA                                    3,292         3,292                  -0-
         Day Care Center                            38,176         38,176                  -0-
         Welding Income                               7,551         6,901                 650
          Total Non-Title IV                      $214,879      $100,426             $114,453


         Total Revenue                          $1,382,342                          $1,281,916
         Title IV Percentage =                     84.46%                             91.07%
         Total Title IV/Total Rev.
         See APPENDIX for an explanation of the above excluded amounts.

For its fiscal year ended June 30, 2001, we determined that GCC met the 90 Percent Rule with
89.23 percent of its revenue from Title IV sources.

Title IV Funds Received by GCC from July 1, 2000, through June 30, 2001

Institutions that fail to satisfy the 90 Percent Rule lose their eligibility to participate in the Title
IV programs on the last day of the fiscal year covering the year that the institution failed to meet
the requirement. As a result, GCC lost its eligibility to participate as of June 30, 2000. During
its fiscal year July 1, 2000, through June 30, 2001, GCC received $1,381,790 in Title IV funds
($576,758 in Federal Pell Grants, $25,819 in Federal Supplemental Educational Opportunity
Grants [FSEOG], $9,181 in Federal Work-Study [FWS], and $770,033 in William D. Ford
Federal Direct Loans).
ED-OIG/A06-C0018                                                                            Page 6


                                 RECOMMENDATIONS 

We recommend that the Chief Operating Officer for Federal Student Aid require GCC to:

1.1 Return $1,381,790 in Federal Pell, FSEOG, FWS and Direct Loan funds to the Department
    that it received from July 1, 2000, through June 30, 2001.

1.2 Strengthen its controls to ensure that future 90 Percent Rule calculations include only
    eligible cash revenues and that the revenue amounts are supported by source documentation.


 GCC’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE
GCC agreed that it had mistakenly included certain non-Title IV revenue in the 90 Percent Rule
calculation, but it did not agree that all of the non-Title IV revenue from the medical center and
day care center should be excluded from the calculation. GCC stated that it met the 90 Percent
Rule when revenues from these two sources were included. GCC’s comments and
documentation did not persuade us to change our conclusions.

Medical Center

GCC Comments. GCC contends that it should be allowed to include the $4,141 of cash received
from patients in its 90 Percent Rule calculation. GCC provided a copy of a fire incident report
and said that receipts for the $4,141 were lost as a result of a May 2001 fire in an apartment
above the medical center. GCC stated that: “There is no basis in law . . . that unless GCC can
provide copies of cash receipt slips, the medical center cash receipts cannot be included . . . .”
The school provided signed statements from the medical center student supervisor and the
school owner attesting that patient cash payments were received, a copy of the ledger account in
which $4,141 of receipts had been recorded, and examples of two deposit slips with hand-
written notes identifying the medical center portion of the deposits (the slips identified $382 and
$106 of deposits applicable to the medical center). GCC also said it could provide copies of its
bank statements and “Tax Form” to support the receipts and that its independent auditor had
reviewed the deposits and ledger and had included the revenue in the school’s audited financial
statements.

OIG Response. While we do not disagree that a fire occurred or that GCC received some cash
payments from patients, we are unable to determine if the $4,141 amount is accurate because the
documents provided by GCC do not support the source of the revenue. Further, the revenue
amount is unusually high compared to patient cash payments recorded by GCC in the following
year. The medical center opened in March 2000. Through June 2000, GCC recorded $4,141 of
total cash payments by patients, including $3,513 in one month (June 2000). GCC recorded
$3,411 of patient cash payments during all of the following year (July 2000 through June 2001).
ED-OIG/A06-C0018                                                                             Page 7


Day Care Center

GCC Comments. GCC contends that the $38,176 of day care center revenue should be included
in its 90 Percent Rule calculation. The school’s response noted that receipts showing the source
of the revenue were damaged in a June 2001 flood and had been discarded. GCC stated it had
 “. . . substantial ‘other documentation’ to support the source of the revenue . . . .” GCC
provided signed affidavits from the former director of the day care center and the school owner
attesting that revenue was collected from parents and deposited into the school’s bank account,
and a copy of the ledger in which day care revenue had been recorded. GCC also stated that the
revenue was included in its audited financial statements.

GCC stated: “There is no basis for the OIG’s claim that the daycare center income was not
necessary to GCC student training.” GCC stated that its inclusion of this income was reasonable
and should not be disallowed under a frequency of use threshold. Further, GCC disagreed that
the day care center was used for student training only one day every three weeks. GCC said it
generally operated several sections of the same course and that “. . . at least once a week some
GCC students were working at the day care center . . . .” According to GCC, it was required to
operate the center every day in order for the students to have access to the day care participants.
GCC said that no one paid for day care on a daily basis, that all tuition was charged on a weekly
basis. GCC also stated that students being trained at the day care center were at all times
supervised by GCC instructors.

OIG Response. The documentation provided by GCC did not support the source of the $38,176
of revenue. While we do not disagree that the day care center generated revenue, we could not
determine if the $38,176 of claimed revenue was accurate without supporting receipts. GCC’s
comments regarding use of the day care center to train students also did not convince us that,
had GCC been able to support the revenue, all of the revenue should be included in the 90
Percent Rule calculation.

We did not intend to imply that the training GCC provided to students during the limited time
they were at the day care center was not necessary, and we did not question whether GCC
instructors supervised the students. The report did, however, address the fact that most of the
center’s revenues would have been generated when no students were present. Activities in
which no students are involved are not necessary for the education or training of students. The
revenues from such activities should not be included in the 90 Percent Rule calculation. We
have changed Appendix A to more accurately reflect this thought.

The school’s owner and the day care center director told us during our audit at the school that
the day care center was used by students one day every three weeks. GCC now states that the
center was used one day every week. GCC did not provide documentation for either amount. In
any event, most of the revenue (either 14/15th or 4/5th) would have been generated when there
were no students being trained at the center. We have changed our discussion regarding GCC’s
use of the day care center to reflect the school’s current statement that students received training
at the center one day every week.
ED-OIG/A06-C0018                                                                             Page 8



                      FINDING NUMBER 2 

      GCC NEEDS TO RETURN ADDITIONAL TITLE IV FUNDS FOR 

                  STUDENTS WHO WITHDREW


GCC understated the amount of Title IV funds that it was required to return by $9,978 for 9 of
35 sample students who withdrew during the period July 1, 2000, through December 31, 2001.
GCC complied with its State licensing agency requirement that it take attendance by requiring
students to sign in each day they attended. These sign-in sheets did not support the LDA that
GCC used to calculate the amount of Title IV aid to return for the nine students. We determined
that the LDA documented on the sign-in sheets were from 7 to 109 days before the LDA that
GCC had used. By using incorrect LDA, GCC was able to retain an additional $9,978 of Title
IV funds.

State Licensing Agency Requires GCC to Take Attendance

The Louisiana Board of Regents, the State licensing agency, required GCC to maintain student
attendance records. Pursuant to 34 CFR § 668.22, schools that are required to take attendance
must use the LDA in calculating Title IV return amounts.

       (a) General. (1) When a recipient of title IV grant or loan assistance withdraws
       from an institution during a payment period or period of enrollment in which
       the recipient began attendance, the institution must determine the amount of
       title IV grant or loan assistance . . . that the student earned as of the student's
       withdrawal date in accordance with paragraph (e) of this section.

       (2) If the total amount of title IV grant or loan assistance, or both, that the
       student earned as calculated under paragraph (e)(1) of this section is less than
       the amount of title IV grant or loan assistance that was disbursed to the student
       or on behalf of the student in the case of a PLUS loan, as of the date of the
       institution’s determination that the student withdrew –

       (i) The difference between these amounts must be returned to the title IV 

       programs . . . . 


       (b) Withdrawal date for a student who withdraws from an institution that is
       required to take attendance. (1) For purposes of this section, for a student who
       ceases attendance at an institution that is required to take attendance, including
       a student who does not return from an approved leave of absence, as defined in
       paragraph (d) of this section, or a student who takes a leave of absence that
       does not meet the requirements of paragraph (d) of this section, the student's
       withdrawal date is the last date of academic attendance as determined by the
       institution from its attendance records. [emphasis added]
       (2) An institution must document a student's withdrawal date determined in
       accordance with paragraph (b)(1) of this section and maintain the
ED-OIG/A06-C0018                                                                                          Page 9

        documentation as of the date of the institution's determination that the student
        withdrew . . . .
        (3)(i) An institution is “required to take attendance” if the institution is
        required to take attendance for some or all of its students by an entity outside
        of the institution (such as the institution’s accrediting agency or state agency).

GCC Used Incorrect LDA to Calculate Title IV Return Amounts

GCC’s procedure for complying with the requirement that it take attendance was to have
students sign in during the first class of each scheduled class day. On a weekly basis, a GCC
official transferred the sign-in data to students’ individual attendance records. For students who
withdrew, GCC’s procedure was to use the LDA recorded in the students’ individual attendance
records in calculating the Title IV funds that had to be returned.

Based on our comparison of the sign-in sheets and individual attendance records, we determined
that the sign-in sheets did not support the LDA recorded in the individual attendance records for
9 of 35 sampled students who withdrew. The documented LDA on the sign-in sheets for the nine
students ranged from 7 to 109 days before the dates shown on the individual attendance records.
GCC returned $5,790 of Title IV funds for the nine students. We used the LDA supported by the
sign-in sheets and determined that GCC needs to return an additional $9,978 of Title IV funds
for the nine students.

GCC acknowledged that its attendance record keeping procedure could be improved. A GCC
official stated that sometimes students would forget to sign in. She explained that if she saw the
student at school, she would record attendance in the student’s individual attendance record even
though the sign-in sheet may not show that the student attended that day.


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

2.1 Return to the Department $9,978 in Title IV funds for the nine students for whom
    inaccurate LDAs were used in calculating the amounts of Title IV funds to return.2

2.2 Identify all students not included in our audit who withdrew; determine if incorrect LDAs
    were used by comparing sign-in sheets with the students’ individual attendance records;
    calculate the amount of Title IV funds that should have been returned using the correct
    LDA; and return any additional Title IV funds identified.

2.3 Have an Independent Public Accountant verify the school’s determinations for accuracy.




2
 GCC disbursed $1,680 of the $9,978 after June 30, 2001 ($608 in Federal Pell Grants and $1,071 in Direct Loans).
The remaining $8,298 is duplicative because we already recommended it be returned in Finding Number 1.
ED-OIG/A06-C0018                                                                           Page 10

2.4 Strengthen its controls to ensure that students comply with GCC’s attendance policy and
    that attendance data recorded by students on the sign-in sheets are accurately transferred to
    students’ individual attendance records.


 GCC’S COMMENTS TO THE DRAFT REPORT AND OIG’S RESPONSE
GCC described the actions it had taken to strengthen procedures for documenting attendance,
which included moving the student sign-in sheets to a front desk where students enter the school
and requiring instructors to also record attendance in their classrooms in either a roll book or a
second set of student sign-in sheets. GCC also agreed with our finding that it owed $711 for
three of our sample students who withdrew and said that it had returned the funds.

GCC did not agree that it needed to return Title IV funds disbursed for 12 of our sample students
who withdrew. Based on our analysis of GCC’s comments and documentation for the 12
students, we dropped our findings for six students. The comments and documentation did not
persuade us to change our conclusion that GCC understated the required Title IV return amounts
for the remaining six students. We have changed our report to state that GCC needs to return
$9,978 of Title IV funds for nine students (the three students for whom GCC agreed with our
finding and six students for whom GCC did not agree). GCC’s specific comments relating to
the six students for whom GCC did not agree and our responses follow.

GCC Comments. GCC said that the student sign-in sheets were not the only manner in which it
confirmed attendance. The school mentioned that it had encouraged instructors to take daily
attendance and “If a teacher’s roll book showed a later date of attendance, GCC used that date.”
GCC also stated: “. . . because the GCC facilities are compact, it is not unusual for the Registrar
to walk around the building and run into students that she knows have not been completing their
sign-in sheets. Therefore, the Registrar will record the student’s appearance herself, on the
attendance cards.”

For three of the six students, GCC provided copies of instructor roll books as support for the
LDA that it had used. For the remaining three students, GCC provided other documentation.
The documentation included copies of cancelled checks for two of the three students, which
were made payable to them and dated after the LDA recorded on their sign-in sheets. GCC said
it would not have released the checks if the students were not attending. For the third student,
GCC provided a copy of the final grade sheet for one phase of a course. The grade sheet
identified all of the students in the course, including our sample student. The only dates on the
grade sheet were the beginning and ending dates of the course. The course ending date was after
the student’s LDA recorded on the sign-in sheet.

OIG Response. Information contained in the roll books did not persuade us to change our
finding that GCC had understated the required return amounts for the three students. The roll
books for two of the three students were incomplete or contained conflicting information. For
example, one instructor’s roll book had no students marked as absent during a one-week period.
The sign-in sheets for this instructor showed our sample student and two other students to be
absent during all or a portion of that week. We concluded that the instructor had not recorded
ED-OIG/A06-C0018                                                                           Page 11

attendance in her roll book for the week. The roll book provided for one of the three students
supports the LDA we had used in our calculation.

The cancelled checks and grade sheets GCC provided for the three other students did not
persuade us to change our return of Title IV funds calculations that were based on the LDA on
the sign-in sheets. The State licensing agency required GCC to maintain student attendance
records, but these documents do not show attendance or a LDA.

GCC Comments. GCC noted that as a result of our audit it had returned $5,915 of Title IV
funds for our sample students who withdrew. GCC’s response indicated that it had returned
$711 for the three sample students for whom the school agreed with our findings and $5,204 for
three sample students for whom GCC did not agree with our findings. For the three sample
students for whom GCC did not agree, GCC explained that it had mistakenly returned the
amounts for two of the students and had returned the amount for the third student because of
other errors it had identified.

OIG Response. The $5,915 includes $5,389 of the $9,978 that we had determined should be
returned for the nine students. GCC needs to return an additional $4,589 ($9,978 less $5,389) of
Title IV funds.


                                     BACKGROUND
GCC, formerly Nick Randazzo Vocational Training Institute, is a proprietary school located in
Gretna, Louisiana. GCC became licensed to operate in Louisiana in December 1991, and was
accredited by the Accrediting Commission of Career Schools and Colleges of Technology
beginning in June 1993. The Department provided GCC initial approval to participate in the
Title IV programs in September 1993. Due to a high Federal Family Education Loan Program
cohort default rate, the Department provisionally certified the school from September 27, 1999,
through September 30, 2002. The school offers certificates in Business Computer Technology,
Medical Assistant, Nurse Technician, and Medical Administrative Assistant.

During the period July 1, 2000, through December 31, 2001, GCC received approximately $2.2
million in Title IV funds (Federal Pell Grants, FSEOG, FWS and Direct Loans).


              OBJECTIVE, SCOPE, AND METHODOLOGY
The objective of our audit was to determine whether GCC complied with the HEA and
regulations relating to the 90 percent rule, eligibility of short-term training programs, use of
professional judgment, student eligibility, Title IV disbursements, return of Title IV funds, and
financial responsibility.

To accomplish our objective, we obtained and reviewed background information about the
school and the school’s Title IV policies and procedures. We also reviewed the school’s
accounting records and audited financial statements and compliance audit reports for the years
ED-OIG/A06-C0018                                                                          Page 12

ended June 30, 2000, and June 30, 2001. We interviewed current and former GCC personnel,
State licensing agency officials, and the Independent Public Accountants who prepared the
school's audited financial statements and compliance audit reports for the years ended June 30,
2000, and June 30, 2001. We also reviewed the Independent Public Accountant’s working
papers for both the financial statement audit and the compliance audit for the year ended June 30,
2001.

We applied statistical sampling techniques to the universe of 461 students who received Title IV
aid from July 1, 2000, through December 31, 2001, by initially selecting for review a random
sample of 25 students. The 25 sample students included 13 students who withdrew. To evaluate
the return of Title IV funds, an additional 22 students who withdrew were randomly selected for
review. A total of 142 of the 461 students had withdrawn. In total, we reviewed GCC’s student
files and disbursement records for 47 randomly selected students, including 35 students who
withdrew.

We tested the reliability of computerized student records by comparing selected data with
student files and GCC’s bank statements. Based on our reviews of the data, we concluded the
records were reliable for the purposes of this audit. We also obtained data from the
Department’s National Student Loan Data System and the Grants Administration and Payment
System.

We performed our fieldwork from March 4 through 28, 2002, at the school’s campus in Gretna,
Louisiana. We conducted an exit conference with GCC on June 10, 2002. We performed
additional work at GCC on October 22, 2002, after receiving the school’s response to our draft
report. The purpose of the follow-up visit was to review instructor roll books, which GCC had
not provided during our initial fieldwork. 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 gained an understanding of the management control structure, as well
as the policies, procedures, and practices applicable to the scope of our audit. We gained an
understanding of GCC’s policies and procedures related to: (1) institutional and program
eligibility, (2) student eligibility, (3) Title IV disbursements, and (4) calculation of Title IV
funds to be returned. Because of inherent limitations, gaining an understanding of management
controls would not necessarily disclose material weaknesses. However, we identified
weaknesses in the school’s procedures relating to calculating the 90 Percent Rule and calculating
Title IV funds to return. These weaknesses are discussed in the AUDIT RESULTS section of
this report.
                                      APPENDIX A 

                 Explanation for Amounts Excluded from the 90 Percent Rule Calculation
Medical Center The $9,141 reduction includes $4,141 identified as cash payments from patients,
               which GCC was unable to support with cash receipts or other documents, and
               $5,000 identified as cash received for start-up costs to establish the Medical
               Center. GCC’s owner told us that all the cash payment records were lost as a
               result of water damage from a fire in May 2001. GCC received the $5,000 from a
               physician before the Medical Center opened. It was not revenue from tuition,
               fees, other institutional charges, or activities necessary for the training of
               students. [34 CFR § 600.5(d)(1)]
Rental Income The $2,059 represents rent paid by students for an apartment owned by GCC.
               GCC had not included the rent as an institutional cost. GCC also could not
               provide cash receipts to support the source of the rent. [34 CFR § 600.5(d)(1)]
Gain on Sale   GCC sold its apartment building and Day Care Center for a net gain of $29,394.
of Assets      This gain was not revenue from tuition, fees, other institutional charges, or
               activities necessary for the training of students. [34 CFR § 600.5(d)(1)]
Federal Work   FWS funds may not be included in either the numerator or the denominator of the
Study          calculation. [34 CFR § 600.5(e)(1)(i)]
FSEOG-ACA      FSEOG - Administrative Cost Allowance (ACA) is not income from tuition, fee,
               other intuitional charges, or activities necessary to the training of students and
               should not have been included in the calculation. [34 CFR § 600.5(d)(1)]
Day Care       GCC provided documentation supporting that $38,176 was deposited into its
Center         operating bank account, but it was unable to provide copies of cash receipts or
               any other documentation to support the source of the revenue. GCC’s owner told
               us that all of the day care center records had been destroyed in a 2001 flood
               resulting from Hurricane Allison.

                 Even if supporting records had been available, most of the revenue was not
                 eligible to be included in the 90 Percent Rule calculation because it was not
                 generated when students were being trained in the day care center. [34 CFR §
                 600.5(e)(4)]. According to GCC’s owner, students used the day care center for
                 training purposes one day every week. The center operated five days a week.
                 Since students used the center only one day out of five, any revenue generated
                 during the other four days was not eligible to be included. Accordingly, had
                 GCC been able to support the $38,176, no more than 1/5th, or $7,635, of the total
                 amount could have been included in the calculation. This amount would not
                 provide enough revenue for GCC to meet the 90 Percent Rule.
Welding          The $6,901 was cash realized from the sale of welding equipment and was not
Income           revenue from tuition, fees, other institutional charges, or activities necessary for
                 the training of students. [34 CFR § 600.5(d)(1)]
                                                  APPENDIX B 





                :               :"    ..



             Gretna Career Conege'sResponse to 

                    OIG Draft Audit Report 

                      .• (Issued August 2002) 





,",   :~~.



                            Submitted to




                        Sherri L. Demmel
               Regional Inspector General for Audit



                       September 20, 2002
                                                                                            APPENDIX B
                    Gretna Career College
..-

..
                      1415 Whitney Avenue Gretna, LA 70053
                   Phone: [504] 38B-5409 FAX: [504] 3B5-1004 




   September 20, 2002


   Shenl Demmel
   ReQional Inspector General for Audit
   U.S. Depanment of Education 

   Office of Inspector General 

   1999 Bryan Street, Suite 2630 

   Dallas, Texas 75201-6817 


                                                           RE: Control Number - ED-QIG/AOO-C00l8

   Dear Ms. Demmel:

   Enclosed please find Gretna Career Colle~e's response to the DIG-Draft Audit Report issued August
   19. We will continue to provide full cooperation as you consider the rationale and data presented
   with this response.

   Gee would like to thank you once a~aln for the courtesies shown durin~ your visit to our school.

   Sincerely,

   72J-~
   Nick Randazzo
   President/CEO




            "Train Today for a Career Tomorrow" 

                                           APPENDIX B 





Gretna Career College's Response to 

       OIG Draft Audit Report 

         (Issued August 2002) 





              Submitted to




           Sherri L. Demmel 

  Regional Inspector General for Audit 




          September 20, 2002 

                                                                                                 APPENDIX B 


        On August 19, 2002, the U.S. Department of Education ("Department") Office of Inspector
General, Regional Inspector General for Audit ("OIG") issued a Draft Audit Report containing two
proposed findings.      The first finding alleges that Gretna Career College (GeC") was ineligible to
participate in the Title IV programs during the 2000-01 award year because it received more than 90
percent of its revenues from Title IV funding during the prior fiscal year (ending June 30, 2000). The
second finding alleges that GeC understated the amount of Title IV aid it was required to return by
$14,987 for 15 of 35 sample students who withdrew during the period from July 1, 2000 through
December 31,2001.
        GCe agrees in part and disagrees in part with both findings. GCe agrees that it mistakenly
included certain items in the denominator of its 90/10 calculation that it should not have. However,
these adjustments do not cause GeC to violate the 90/10 rule.                Further, Gee acknowledges that it
mistakenly understated 3 of the 15 refunds identified by the OIG based on the use of a documented but
uncorroborated last date of attendance. However, the remaining refunds were calculated based on
documented and corroborated last date of attendance. We specifically disagree that GeC was required
to determine the last date of attendance through the use of sign-in sheets only.




                                     RESPONSE TO FINDING NUMBER 1 




        The OIG claims in finding no. 1 that GCe did not comply with the 90/10 rule for the fiscal year
ended June 30, 2000, because the institution included revenue in the denominator of its 90/10
calculation that either (1) was not related to tuition and fees and was not necessary to the education of
GCe's students or (2) cannot be substantiated through cash receipts. The 90/10 rule provides that
Gee shall be ineligible to participate in the Title IV programs in the award year foHowing the year it
receives more than 90% of its revenues from Title IV funding. 34 C.F.R. § 600.5(a)(8).
        According to GeC's original 90/10 calculation, the institution received 84.5% of its funding from
Title IV funds. We accept some of the DIG's corrections to Gee's 90/10 calculation, and, on this basis,
believe that the amended 90/10 calculation should be 88% (88.14).a However, according to the OIG,

aAlthough Gee will not argue the point because it is not supported by ED regulations under 34 C.F.R. § 600.5(e),
GeC believes that the capital gains on the sale of the assets should be included in the revenues for the 90/10
calculation, because, quite literally, the sale of that equipment provided funds that were necessary to provide student
education. Gee has documented that the Direct Loan Program consistently underpaid Gee during the period in
question. At one point, the DLP owed GCC as much as $150,000. GCC is a small institution and desperately needed
that cash flow. When the DLP could not ensure timely payments, GCe took extreme measures to obtain revenues
to meet operational expenses that were very much necessary to delivering the students' education. The DLP has
                                                                                               APPENDIX B

GCC must exclude additional income from the denominator of its 90/10 calculation, including certain
cash receipts from the medical center and a majority of the receipts from the daycare center, which
would result in GCC having received 91.07% of its revenue from Title IV sources. GCC disagrees that
it must exclude this additional income from its 90/10 calculation.


                                           Medical Center Revenues

        The OIG seeks to exclude $4,141 in Medical Center revenues from the denominator of GCC's
90/10 calculation because those revenues consist of cash payments that are not supported by cash
receipts.
        GCe agrees that it does not have any cash receipts corresponding to the $4,141 in cash

payments received by the medical center.              These receipts (along with many other records and

equipment) were lost as a result of a fire in an apartment above the medical center in May 2001. Gee

has provided documentation of that fire, which documentation is attached as Attachment A.b

Attachment B contains an affidavit from          EDITED           the current tenant who occupies one of the

apartments at           EDITED            , which address is the prior location of the medical center. She

states that she had to have an electrician disconnect feed for electricity from the second floor due to a

fire on May 4, 2001. Although the documents and equipment were not touched by the fire, there was

substantial smoke in the building, which triggered the sprinkler system in the medical center. Gee

moved out of that facility, which the Ftre Department has closed as uninhabitable, into a smaller facility,

and so left paperwork and some equipment behind with the landlord's permission.                      Unfortunately,

before Gee pulled its equipment and files from the building, the landlord had a cleaning crew remove

all items and put them in the dump.

        Even though Gee lost a significant number of records in this process, Gee can provide

substantial additional evidence of the cash receipts it claims in its financial statements. Specifically,

Gee can provide the following additional evidence of these cash receipts.



since changed Gee's level of participation to ensure more timely payments to Gee after the school informed the DLP
that it would be required to leave the DLP program if DLP could not make more timely payments.

b Attachment Acontains the Fire Marshall report verifying thatthe fire took place on 05/04/2001 at 1414 Romain Street
in the apartment directly above the medical center where the requested records were maintained.
                                                                                                 APPENDIX B 


                 GCC can provide an affidavit from               EDITED        a GCC MA instructor and Office
        manager of the medical center, attesting to the fact that she received cash payments at the
        medical center and provided them to Nick Randazzo to deposit in GCC's operating account.
        Attachment C.
                GCC can provide a copy of its general ledger reflecting the cash receipts. Attachment
        D. At the time, this ledger was maintained by             EDITED     with oversight by       EDITED        ,   an
        independent bookkeeper.         EDITED •   made entries to the ledger on the basis of the deposit slips
        handed to her.       GCe's external auditor will confirm that she found GeC's financial records to
        be properly maintained and reliable.
                GCC's President, Nick Randazzo, can testify to the fact that he deposited each cash
        payment into GCe's operating account. Attachment E.
                 Gee can       provide a copy of its bank account statements reflecting deposits
        corresponding in amount to the general ledger entries.
                 GeC can provide copies of bank deposits which show that the deposit slips note the
        source of the funds being deposited. Attachment F.
                 Gee can provide a copy of its Tax Form which reflects receipt of these cash payments.
                 Gee's auditor will state that she reviewed the deposit slips corresponding to the General
        Ledger Entries, and specifically, the medical center income, as part of the audit of the 1999­
        2000 financial statements. The auditor felt that there was sufficient evidence to confirm the
        existence of these cash receipts and sufficient uniformity to Gee's financial records to be able
        to include these cash revenues in the audited financial statements.


        There is no basis in law for the OIG to state that unless Gee can provide copies of cash receipt
slips, the medical center cash receipts cannot be included as revenue in the denominator of the 90/10
calculation. There is an ample audit trail respecting these cash receipts which the OIG should not
ignore. c If Gee included the $4141 in cash receipts from the medical center in the denominator of the
90/10 calculation as it should, but continued to exclude the day care center income from the 90/10
calculation, GCe would have received 90% (.9077) of its revenues from title IV funds.


        C Attachment L contains a newspaper article demonstrating that fires and floods destroy even U.S. government

records. Further, according to this article, the U.S. Government recognizes the service of its servicemen, even if their
service records are destroyed as they were in Pennsylvania and St. Louis, MO. Given the substantial remaining
evidence that Gee has of cash receipts for its medical center, there is no basis to insist that such cash payments
never occurred.
                                                                                    APPENDIX B 


                                      Amelia Day Care Center Receipts

       The OIG states that the Amelia Day Care Center funds earned by GCC should not be included
as revenue in the denominator of the 90/10 calculation because 1) GCC does not have copies of cash
receipts "or any other documentation" to support the source of the revenue and 2) the daycare center
was not necessary for the students' education or training or performed under the supervision of a
member of GCC's faculty.
       GCC disagrees with the DIG's conclusions in this respect.       The $38,176 income from the
daycare center should be included in the 90/10 calculation.


GCC Maintains Substantial Documentation Confirming Day Care Income
       After GCC closed the daycare facility on April 28, 2000, the daycare equipment and records
were removed in haste to prepare the property for sale.       All daycare materials, including income,
attendance and other records, licenses for operation, and equipment and books were placed in storage
at the GCC warehouse which is part of the school complex. In June 2001, one year after the daycare
closed, the school complex was flooded due to the torrential rains that accompanied Tropical Storm
Allison. Although the school implemented its emergency plan to prevent the loss of academic and
financial aid records in GCC's main building, the plan inadvertently overlooked the otherwise unused
warehouse. Later that year the damaged records and equipment were discarded as GCC prepared the
facility for use in a proposed automotive program. Documentation from the National Hurricane Center
was given to the audit team as well as Disaster Letters issued prior to 1999. Further, GCe's President
is willing to sign an affidavit respecting the loss of property and paperwork due to flood damage.
Attachment G.
       Although the city of Gretna has made many drainage improvements, prevention of potential
flood waters is an ongoing battle throughout the flood prone Metropolitan New Orleans region. No
building is entirely immune from flood damage, not even government buildings in the area.         The
precautions GCC has taken to date have successfully protected GCC's academic and financial aid
records during the last several years. Nevertheless, to further ensure the safety of GCC records and
property, GCC's maintenance contractor recently installed a cement barricade to the rear of the main
building in preparation for the 2002 Hurricane Season.
       Even if GCC does not have the cash receipts requested by the DIG, these receipts are not
required under any standard known to the institution.          The institution has substantial "other
documentation" to support the source of the revenue for the daycare center.
                                                                                                      APPENDIX B

                            Gee has obtained an affidavit from the staff member interviewed by the OIG affirming
                    that she accepted payments from parents and gave these payments to Gee's president.
                    Attachment H.
                            GeC has a copy of the general ledger which contains contemporaneous entries of
                    receipts for the daycare center. Attachment I.
                            GCC's President has attested that he collected income from the daycare center and
                     deposited the same in GCe's operating account. Attachment J.
                            Gee can provide an audited financial statement that includes the income in question.
                            GCe's auditor can attest to the fact that she reviewed deposit slips that corresponded to
                     the general ledger entries reflecting income receipts from the daycare center.


                     There is no statutory provision or regulation that requires the extraordinary proof of income that
             the OIG requests here.


             The Day Care Center Experience Was Necessary to GCe Student Training
                    There is no basis for the OIG's claim that the daycare center income was not necessary to GeC
.:.:;.:=:>   student training.

                    As previously described to the DIG, GCC always has provided some level of clinical experience
             to its students. We have worked to increase the depth of that experience throughout the years as our
             programs have developed.
                    Prior to the acquisition of the daycare in 1997, Gretna provided fairly basic medical courses to
             its students. Clinical instructors associated with those programs were required to conduct health fairs
             at grocery stores, shopping centers, and schools in order to aHow nursing students the opportunity to
             practice vital signs and other skills. These basic courses did not require extensive pediatric training.
                    When the schoo! entered into negotiation to purchase the daycare in February 1997, the
             curriculum for the Nursing Technology: Medical Assistant Option [MAJ was in the development
             process.   (The curriculum approvals for this program were obtained from the Louisiana Proprietary
             Schools Bureau on April 8, 1997 and the Accrediting Commission of Career Schools and Colleges of
             Technology on April 30, 1997. The MA program was implemented in June 1997 with the first class
             graduating in January 1998.) Management's thinking in purchasing the daycare was that the facility
             would provide an appropriate classroom for students enrolled in the new nursing program to practice
             necessary skills related to pediatric patient care.   The pediatric patient care portion of these programs
             was described in the school's catalog and in its submissions to its state licensure and accrediting
                                                                                           APPENDIX B 


agencies. In addition to meeting GeC's curriculum requirements, the daycare allowed GCC to provide
a daycare service for students and staff. Basically, GCC saw the daycare as a "win-win" proposition
        Initially, the only group of students that trained at the daycare was the MA students. However,
students enrolled in the GCC's two more basic "nursing" programs (lNTRO and TECH) began rotations
at the daycare in August 1998 when the core nursing instructors decided that this resource had real
value for the students, particularly as it related to the revised INTRO and TECH program curricula,
which were changed to include a pediatric unit within the NSGT 220 Nursing Skills II course.
       After a feasibility study, GCC made plans to open a pediatric medical center in the building
adjacent to the school to provide more in depth training of the pediatric patient as well as other skill sets
required for the Gee nursing programs.         The first floor of the adjacent property at (1401 Whitney
Avenue) had been occupied by a medical center two years earlier and was available to serve in the
same function without major capital investment.            After receiving the necessary approvals, the
Randazzo VTI Medical Center opened for service in March 1, 2000. In addition to providing training for
all students enrolled in the MA program, the medical center provides an extern site for students
enrolled in the night program. This has allowed Gee to increase the benefit of the experiential training
offered, an aspect of the program that Gee has always valued.
        During the 1999-2000 award year in question, GCC students worked at the daycare center
periodicaHy in order to practice their diagnostic skills on children.          Under the supervision of an
instructor, these students worked with the children in a manner that they would be able to only "on the
job. nd Students were required to practice vital sign and other pediatric skills (including vision screening,
hearing screening, wellness screening, Colorado testing, speech and language development, looking
for signs of at risk children, and generally interacting with children at the daycare faciHty.)
        GCe disagrees with the OIG's assertion that Gee students worked at the daycare center only
once every three weeks and we apologize that we did not focus on this issue earlier. After receiving
the draft audit report GCe met with several current and former instructors in order to confirm the details
of the visits to the daycare center. While it appears to be accurate that students from a particular class
worked at the center only once every three weeks, Gee generally operated several sections of the
same courses within each of the three programs that utilized the center. Therefore, at least once a
week some GeC students were working at the daycare center because the students could not all work
at the center on the same day. The fact that the students were not at the daycare center every day is
not critical to the analYSis of the necessity of the training to their program.           In many academic


        d Gee has obtained an affidavit from a faculty member who brought students to the daycare center and
supervised their performance. Attachment C.
                                                                                                    APPENDIX B

        programs, a student may spend an entire semester learning something that he or she is able to perform

        or exhibit only once during the semester, but that does not make their performance any less necessary

        to their education.
                    Further, ED's regulations do not state that students must participate in an activity necessary to

        their education or training on a daily basis. It is enough that this activity was deemed by Gce to be
        "necessary" to its educational programs, and particularly the MA program. GCe demonstrated that it
        believed such training was necessary by the fact that it provided relevant, though less formal,
        experiences beforehand and still provides similar experiences today. The daycare center was not a

        lark, it was one of a series of actions taken to provide students with meaningful experience relevant to
        their educational programs. Although in the end GCC determined that a medical center would provide
        a better platform for student experience, GCC was not required to provide the "perfect" experience for
        its stUdents under law in order for that experience to be considered "necessary" to the student's
        training.

              The DIG's definition of "necessary" is not reflected in the Department's regulations.       Although the
        DIG says that the GCC students worked at the daycare center too infrequently for the center to be
        considered "necessary' to their training, the DIG does not state how often GCC students would have to
[~~~:   visit the center in order for that training to be   "necessary,~ The   OIG also does not provide a citation for
        its   "frequenc~   requirement.
              The Department's regulations provide, at section 600.5(e)(4), that "... revenue generated by the
        institution from activities it conducts, that is necessary for its stUdents' education or training, includes
        only revenue from those activities that (i) Are conducted on campus or at a facility under the control of
        the institution; (ii) Are performed under the supervision of a member of the institution's faculty; and (iii)
        Are required to be performed by all students in a specific educational program at the institution." These
        parameters define which activities conducted by an institution are "necessary" for training students in a
        specific eligible program. GCC's use of the daycare center meets these criteria.


              Criteria 1: The institution has provided documentation that the daycare was under the control of
              the school during FY 1999-00. All of the daycare employees (including a pediatric nurse) were
              employed by the college and eligible for benefits such as medical insurance, sick leave, and
                                      c- W piJ/J
              vacation. The College lee!ed the property in which the facility was run.
              Criteria 2: The students were accompanied and supervised by faculty members who developed
              lesson plans and activities that implemented the objectives of the programs. We provide examples
              of these lesson plans at Attachment K. Although these are not reproductions of the actual lesson
              plans for the period in question, these lesson plans were reconstructed by someone who developed
                                                                                          APPENDIX B 

   the original curriculum for GCe and continues to develop that curriculum today. (We could not find
    any copies of the original 1999-2000 lesson plans.)       Faculty members who worked at GCC during
    the relevant period are willing to testify that they supervised students at the daycare center.
    Criteria 3: During 1997- April 6, 2000, all students in the MA program were required to practice
    vital sign and other pediatric skills (including vision screening, hearing screening, wellness
    screening, Colorado testing, speech and language development, looking for signs of at risk
    children, and generally interacting with children) at the daycare facility. From August 1998 to April
    6, 2000, TECH and INTRO students also were required to practice set skills at the daycare facitity.
   These activities were conducted as a specific unit of training in each program.             (MA student
    performance at the daycare facility was considered in the student's grade for MAST 225 Medical
   Assistant Lab II; TECH and INTRO student performance at the daycare facility was considered in
    their grade for NSGT 220 Nursing Skills II.)         Thus, at all times from 1997-2000, all students
    enrolled in at least one of GCC's programs were required to perform specified activities at the
    daycare. These students did not all work at the daycare on the same day.


The DIG Must Include a Larger Portion of Day Care Revenues in the 90/10 Calculation.
       Even if we accept the OIG's argument that the daycare center was of limited necessity to the
training of GCC's students, there is no basis for accepting only 1/15 of the income received from the
daycare as non-Title IV revenue as suggested by the DIG. Gee was required to operate the daycare
every day in order for the students to have access to the daycare participants. Parents would not hire a
daycare that provided services once every three weeks.
       Further, no one paid for daycare on a daily basis. All tuition was charged on a weekly basis and
all of the tuition was earned in one day. Parents were required to pay for the entire week even if their
child attended only one day.      Therefore, if any prorating is appropriate, even assuming the DIG's
position that students worked at the daycare center once every three weeks (which GeC's owner has
now confirmed is inaccurate), Gce should be able to include 5/15 of the daycare revenue, not 1/15, in
the 90/10 calculation for the 1999-2000 Award Year. 5/15 of the daycare income is $12,725.
Students were Supervised by Faculty While Working at the Daycare Center
       GCe is not sure on what basis the OIG says that students were not supervised at the daycare
site. GCe staff and instructors transported students to the daycare site and students were at all times
supervised by GeC instructors. We have confirmed these facts with                EDITED    ,one of the MA
instructors who took students to the daycare for student activities related to training. She also assumed
responsibility of supervising at the daycare site while performing these activities.         EDITED   has
informed us that she will provide an affidavit to this effect if requested to do so.
                                                                                                             APPENDIX B 


                                      Gce Sought Advice Respecting the 90/10 Calculation
                    The institution's management is aware of the importance of complying with all Title IV program
            regulations. The institution strives to comply with these regulations and provides financial support for
            management to attend Department of Education seminars each year in order to remain informed
            respecting the Department of Education's interpretation of applicable rules. Since the reauthorization in
            1998, management has followed the discussions and interpretations of the law through the publications
            of professional associations and trade journals.
                    In April 2000, Mr. Randazzo traveled to the Annual Region IV Conference for Proprietary
            Schools sponsored by the U. S. Department Region lV Southwest Case Management Team held in
            Dallas, Texas. He attended the conference in part because he had several questions concerning ED's
            interpretation of the 90/10 Rule.        The Saturday afternoon General Session, which focused on the
            Reauthorization of 1998, and whose panel contained private practitioners and ED personnel,
            considered the 90/10 Rule, among other issues.                Mr. Randazzo questioned the panel regarding
            acceptable revenues generated by schools to be included in the denominator of the 90/10 calculation.
            Mr. Randazzo noted that ED had not provided many examples of the type of activities that might be
            considered a "necessary" part of a student's education and asked what the panel thought about GCC's
            daycare and medical facility arrangements.             The Panel agreed that the law does not list specific
            activities but does reference the three regulatory criteria for determining eligible revenues generated by
'·.Y'''.
   ..",,­
            school activities. The panelists stated that Mr. Randazzo would have to use his own judgment to
            determine that the activities he described meet the criteria to include the associated revenues in the
            institution's 90/10 calculation. Given this dialogue and the absence of specific guidance from ED, GCC
            used its best judgment in including the daycare income in the denominator of its 90/10 calculation. e
            The institution firmly believes that the daycare center provided an appropriate setting to train nursing
            students, specifically those enrolled in the approved Medical Assistant program, to meet educational
            objectives and to gain hands on training in the area of pediatriC medical assisting.               At the very least,
            GCC's interpretation of the 90/10 rule was reasonable and this is all that is required under the law.
                    As the audit process continues, management asks the DIG to consider the time frame in which
            the Financial Audit for FY 1999-00 was prepared and the guidance that was available to institutions
            during that period.    GCe has worked very hard to ensure its compliance with the 90/10 rule and does
            not believe that it should be deemed ineligible and assessed a $1,381,790 liability based on a
            previously unpublished "frequency" threshold. This threshold is not supported by law.
                    Even though GCe does not agree with the DIG's frequency threshold, based on this audit, the
            institution has ensured that its students visit the medical facility several times a week. GeC welcomes
            any guidance the DIG can provide respecting GeC's prospective 90/10 calculations.

            e GCC has tried in good faith to comply with the 90/10 Rule. Based on previously-issued ED guidance, the
            jnstitution has not taken the path of other institutions and attempted to count institutional student scholarships and
            loans as non Title IV funds in its 90/10 calculation
                                                                                     APPENDIX B 


                                              CONCLUSION 


       We request the DIG to review carefully the arguments and exhibits provided herein. Although
we are aware that the 2001-02 DIG work plan calls for increased audits of 90/10 compliance, we ask
the OIG not to issue a final audit report in this case unless such a report is truly warranted. Gee has
scarce resources to dispute such a determination and hopes to continue to spend any additional
funding it has on its academic programs and facilities, and not on a dispute with the Department. It
makes little sense to Gee that the OIG would work so hard to attempt to disqualify Gee from the
programs based on a difference of opinion respecting the ability to include in the denominator a
relatively small amount of non-Title funds.
       The OIG's draft audit report establishes two requirements that appear no where in the law.
First, the OIG has stated that regardless of the substantial audit trail showing income and the reflection
of this income in audited financial statements, the DIG will require Gee to provide cash receipts to
support such income. Gee knows of no precedent for this position. Second, the OIG has stated that
because Gee students did not work at the daycare center often enough, the activity at this center was
not necessary for the students' education or training. Again, no such standard exists under the law.
       Gee asks the OIG to seek ED guidance on this issue before it closes a small school with good
outcomes (77% completion rate and 79% placement rate, and 100% state licensure pass rate for the
most recent (1999-2000) cohort), puts approximately 30 employees out of work and dislocates 125
urban and low-income students.
                                                                                                  APPENDIX B
                                     RESPONSE TO FINDING NUMBER 2
                            GCC NEEDS TO RETURN ADDITIONAL TITLE IV FUNDS FOR
                                       STUDENTS WHO WITHDREW


            According to OIG Audit Team, "Gee understated the amount of Title IV funds that it was required
            to return by $14,987 for 15 of the 35 sample students who withdrew during the period July 1,
            2000 through December 31, 2001. Gee complied with its State licensing agency requirement
            that it take attendance by requiring students to sign in each day they attended. These sign-in
            sheets did not support the LDA that Gee used to calculate the amount of Title IV aid to return
            for the 15 students. We determined that the LOA documented on the sign-in sheets were from 7
            to 109 days before the LDA that Gee had used. By using the incorrect LOA, GCC was able to
            retain an additional $14.987 of Title IV funds. "

                   GCC used the most accurate date, according to its records, to determine the last date of
            attendance ("LOA") of students who dropped during the audit period.

                    Gretna Career College is licensed by the State of Louisiana Board of Regents. There are two
            references to student attendance in the applicable Rules and Regulations Bulletin 1443. The first is
            in the State refund policy, which must be included in the school's enrollment agreement and school
            catalog. (Chapter 7, Permits for Solicitors, Section F Enrollment Contracts or Agreements.
            Paragraph 1.a-c pages 19 to 21). The second reference is the requirement that "... policies relative to
            tardiness, absences, make-up work, conduct, termination, re-entry and other rules and regulations of
            the school" be published in the school's catalog. (Chapter 7 Permits for Solicitors. Section H
            School Catalog, Paragraph 3.h page 23).

                    According to a telephone conversation between Andrea Randazzo, GCC Financial Aid
';.,~   .   Administrator, and     EDITED        of the Proprietary Schools Section, the Board of Regents interprets
            these rules to require each school to maintain attendance records in order to apply the State refund
            policy (the State policy serves as the institutional refund policy replacing Federal Pro Rata). Mrs.
              EDITED    has since confirmed that there is no specific State rule or regulation mandating how
            attendance is to be recorded, and each school is responsible for establishing policies and procedures
            regarding this function. (See Attachment 2-A). Similarly, federal regulations do not state that
            attendance must be maintained through any particular procedure. Further, GCC's policies do not
            require the school to determine a student's attendance on the basis of sign-in sheets only.

                   GCC's attendance policies in effect during the 1999-2001 period provided that students were to
            maintain regular and prompt attendance. a The policies did not state that GCC would determine a

                                a   ATTENDANCE AND TARDINESS POLICY

                               The college requires that students have regular and prompt attendance.
                        Attendance is important to achievement and acquisition of good work habits.
                        Repeated tardiness and absences may lead to attendance probationor suspension.
                         When a student's absences exceed 25% of the total training time in a five week
                        training phase. the student will be placed on attendance probation for the subsequent
                        phase. If excessive absences continue while on attendance probation. the school
                        reserves the right to suspend or dismiss the student. It is the responsibility of the
                        student to notify the college when he is going to be absent. TEN consecutive
                        absences without notifying Student Services will result in the student being dropped
                        from the college. The Director determines if an absence is excused or un-excused.
                        Illness with a doctor's certificate, death in family. and subpoena for court
                        appearances are considered excused absences. Other extenuating circumstances
                        may be considered by the Director.
                                                                                        APPENDIX B 


student's LOA based on sign-in sheets. GCC's withdrawal policy merely stated that the last date of
attendance, in the case of an official withdrawal, would be the last date of "recorded attendance."
Similarly, in the case of an unofficial withdrawal, the last date of attendance is the date that the school
determines that the student ceased attending classes, Le., the student actual last date of attendance.b
For GCC, this was the last date of documented attendance, through sign-in sheets or otherwise.

              The OIG correctly notes that GCC's primary method of confinning student attendance is to
require students to sign a sign-in sheet each day. Attendance is transferred to an Attendance Card that
becomes part of the student's permanent record. GCC recognizes that the sign-in sheets are not 100%
reliable. Examples of common errors identified by the Registrar include (1) a student who signs in on
Monday for four days and actually only attended two days (in this case the school does not follow the
sign-in sheet); (2) a student who reports to school late and does not sign in because the daily sign-in
sheet is with the instructor whose class was missed; (3) a student is present and forgets to sign in; (4) a
very few instructors prefer to record attendance by another method andlor lose or do not tum in the
sign-in sheets. In other words, the system is subject to human error. Therefore, as explained to the
auditors during their visit, this is not the only manner GeC has for confirming attendance. During 1999­
2000, GCC encouraged all instructors to take daily attendance, and most instructors did so. (Current,
GCC poliCies require all instructors to take daily attendance.) If a teacher's roll book showed a later
date of attendance. GCC used that date. In addition, because the GCC facilities are compact. it is not
unusual for the Registrar to walk around the building and run into students that she knows have not
been completing their sign-in sheets. Therefore. the Registrar will record the student's appearance
herself, on the attendance cards. The Registrar is the only person who does this and is the only one
with direct access to these attendance cards. Finally, then and now, the Registrar reviews the sign-in
sheets at the end of each week (Friday) and contacts the relevant teacher if a student has failed to sign
in for three consecutive days (and the Registrar doesn't otherwise know the student is attending
classes). If the student was in class, the Registrar will note this on the attendance careL If the student
was not in class, then, the Registrar will ask to see the contact sheet that the instructor completed after
contacting the student and inquiring about the student's absence. (Instructors are required to contact a
student each time that student misses class.) This is another opportunity for the instructor to inform the
Registrar whether the student attended class or not.

             When withdrawing a student, the Registrar seeks the most accurate date to be used as
the LOA. Often the instructors have a more precise date in their roll book or can recollect the last time
the student actually attended class than is reflected on the sign-in sheets or attendance card.


                    b   WITHDRAWAL AND RE-ENTRY

                   Official Withdrawal. To officially withdraw, a student must initiate the
             withdrawal process by obtaining the appropriate forms from the Registrar.
             Any student who officially withdraws will receive a WITHDRAWAL or "W'
             on the official transcript record. The last date of recorded attendance is used
             to calculate refunds. The date of written notification is used as the official
             date of termination. Failure to withdraw properly may result in the
             assignment of failing grades which become part of the student's permanent
             record. See MINIMUM CANCELLATION AND REFUND POLICY.

                   Unofficial Withdrawal. If a student is absent ten consecutive days
             without notifying the school, the student will be dropped. The oHicial date 01
             termination is the date that the school determines that the student has ceased
             attending classes.
                                                                                     APPENDIX B

              After receiving the OIG's preliminary findings, GCC's financial aid administrator began the
process of reviewing the records of the fifteen students cited in Finding #2 during July 2002. She also
was in the process of closing out Year 7 - AY 2000-01 and her first response to the entire audit process
was to return all funds without contesting the OIG's finding. Therefore, all loan proceeds for students
78 ($849.00 DLS/$163.00 DLU), 79 ($752.88/96.12 DLS/$646.00 DLU), and 135 ($843.82 DLSI
$897.00 DLU) were returned as Excess Cash and the disbursement records adjusted accordingly.
Likewise, GCC returned all loan proceeds for student number 8 to the DLP as Excess Cash in February
2002 because the institution determined that the LOC had lost the original promissory note supporting
this student's loan (the loan was never booked). Although no efforts will be made to reverse funds
already returned because this would confuse the students, GCC has reviewed the remaining student
records with respect to this finding and believes that most students received the correct refund based
on the LDA originally cited by the institution.

             After conducting a closer review of all student records, GCC has determined that it can
support the original LDA for 12 of the 15 students in question. GCe should not have returned the
$4524.00 funds that it returned prior to conducting this thorough review. GCC determined that it had
erred in three cases and has returned $710.85 based on these errors (and $4524.00 based on its
decision to over refund.) In addition, GCC identified and returned $1682.47 due to internal findings. A
summary of the funds returned and remaining liability is provided in Attachment 2-B. Supporting
documents and a corresponding spreadsheet are provided at Attachment 2-C.

        Because GCC believes that the sign-in sheets are the most efficient manner to record
attendance (and provide the students some sense of responsibility for their appearance at class), and
want to improve its controls over attendance confirmation, GCC has moved the sign-in sheets to the
front desk. Each teacher is now required to record attendance in his or her classroom in either a roll
book or via a second set of sign-in sheets. Further, GCC will now note the source of information for the
last date of attendance in each student file so that it is clear whether this information comes from the
sign-in sheet, the Registrar's edit to the attendance card, the teacher roll book, or some other source.

       GCC would like to thank you once again for the courtesies shown during your visit to our school.
                           REPORT DISTRIBUTION LIST
                           Control Number OIG/A06-C0018


Auditee                                           Action Official

Mr. Nick Randazzo, President                      Theresa S. Shaw
Gretna Career College                             Chief Operating Officer
1415 Whitney Avenue                               Federal Student Aid
Gretna, LA 70053-2436


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Accrediting Commission of Career Schools          Louisiana Board of Regents
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