oversight

Community Care College's Administration of Title IV Federal Student Aid Programs.

Published by the Department of Education, Office of Inspector General on 2009-08-26.

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

     Community Care College’s Administration of Title IV 

              Federal Student Aid Programs 


                                 FINAL AUDIT REPORT
	




                                    ED-OIG/A06H0016
	
                                       August 2009 



Our mission is to promote the                           U.S. Department of Education
efficiency, effectiveness, and                          Office of Inspector General
integrity of the Department's
programs and operations.
                                  NOTICE 


    Statements that managerial practices need improvements, as well as other
  conclusions and recommendations in this report, represent the opinions of the
 Office of Inspector General. Determinations 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 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

                                                                                                              AUDIT SERVICES
                                                                                          Chicago/Kansas City/Dallas Audit Region

                                                           August 26, 2009

Teresa Knox
Chief Executive Officer
Community Care College
4242 South Sheridan
Tulsa, OK 74145

Dear Ms. Knox:

Enclosed is our final audit report, Control Number ED-OIG/A06H0016, entitled Community
Care College’s Administration of Title IV Federal Student Aid Programs. This report incorporates
the comments you provided in response to the draft report. If you have any additional comments
or information that you believe may have a bearing on the resolution of this audit, you should
send them directly to the following Education Department official, who will consider them
before taking final Departmental action on this audit:

                                           William J. Taggart 

                                           Chief Operating Officer 

                                           Federal Student Aid 

                                           U. S. Department of Education 

                                           Union Center Plaza, Room 112E1 

                                           830 First Street, N. E. 

                                           Washington, D.C. 20002 


It is the policy of the U. S. Department of Education to expedite the resolution of audits by
initiating timely action on the findings and recommendations contained therein. Therefore,
receipt of your comments within 30 days would be appreciated.

In accordance with the Freedom of Information Act (5 U.S.C. § 552), reports issued by the
Office of Inspector General are available to members of the press and general public to the extent
information contained therein is not subject to exemptions in the Act.


                                                                 Sincerely,

                                                                 /s/

                                                                 Gary D. Whitman
                                                                 Regional Inspector General for Audit

Enclosure




 The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational
                                                   excellence and ensuring equal access.
                                              TABLE OF CONTENTS
	


                                                                                                                                  Page

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

BACKGROUND ............................................................................................................................3
	 

AUDIT RESULTS .........................................................................................................................5
	 

          FINDING NO. 1 - Incorrect Return of Title IV Aid Calculations ................................5
	

          FINDING NO. 2 – Untimely Determination of Student Withdrawal .........................13
	
                                                                                                   

          FINDING NO. 3 - Untimely Return of Title IV, HEA Program Funds .....................15
	 

          FINDING NO. 4 - Improper Disbursements to Students Who Withdrew .................17
	 

          FINDING NO. 5 - Incorrect Prorating of Pell and FFEL ............................................19
	
                                                                                                              

          FINDING NO. 6 - Improper Preparation of the 90/10 Rule Calculation ...................20
	 

OBJECTIVES, SCOPE, and METHODOLOGY ....................................................................25
	 

ENCLOSURE: CCC’s Comments on the Draft Audit Report................................................27
	
                                                                                                      
               Acronyms/Abbreviations Used in this Report

C.F.R        Code of Federal Regulations
CCC          Community Care College
COO          Chief Operating Officer
Department   U. S. Department of Education
DCL          Dear Colleague Letter
FFEL         Federal Family Education Loan
FSA          Federal Student Aid
HCM2         Heightened Cash Monitoring Two
HEA          Higher Education Act of 1965
IPA          Independent Public Accountant
LDA          Last Date of Attendance
LOA          Leave of Absence
LOC          Letter of Credit
NSLDS        National Student Loan Data System
Pell         Federal Pell Grant
Final Report
ED-OIG/A06H0016                                                                       Page 1 of 57



                                EXECUTIVE SUMMARY 



The objectives of our audit were to determine if Community Care College (CCC) complied with
selected provisions of the Higher Education Act of 1965, as amended (HEA), and regulations
governing (1) student eligibility, (2) recruitment of students and incentive compensation, (3) the
return of Title IV aid, (4) disbursements, and (5) the percentage of revenue that may be derived
from Title IV, HEA programs (90/10 Rule). Our audit covered the period July 1, 2006, through
June 30, 2007 (award year 2006-2007).

During award year 2006-2007, CCC generally complied with the HEA and regulations
governing student eligibility for the 25 students in our sample. In addition, CCC generally
complied with the recruitment of students and incentive compensation requirements. However,
CCC did not comply with the HEA and regulations governing the return of Title IV aid,
disbursements, and the 90/10 Rule. Specifically, CCC:

   	 Incorrectly calculated the amounts it was required to return to Title IV, HEA program
      accounts, returning $37,277 less than it should have for the students in our sample.
      Based on our sample results, we are 90 percent confident that CCC incorrectly calculated
      the amounts it was required to return for at least 228 (71 percent) of the 321 students who
      dropped out during award year 2006-2007;
   	 Untimely determined when students withdrew from CCC, exceeding the 14-day
      withdrawal determination period for 27 of the 33 (82 percent) students in our sample;
    Untimely returned Title IV, HEA program funds;
    Improperly made late disbursements, resulting in CCC retaining $7,345 in prohibited
      loans disbursed to students in our sample. Based on our sample results, we are 90 percent
      confident that CCC disbursed Title IV, HEA program funds late to students who
      withdrew, disbursing amounts after the students’ last date of attendance (LDA) for at
      least 144 (45 percent) of the 321 students who received Title IV, HEA program funds and
      withdrew during the award year 2006-2007;
    Incorrectly prorated disbursements, resulting in excessive awards of $2,461 for students
      in our sample; and
    Inaccurately calculated the percentage of revenue it derived from the Title IV, HEA
      programs.

We recommend that the Chief Operating Officer (COO) for Federal Student Aid (FSA) require
CCC to:

   	 Recalculate all return of Title IV aid calculations for students who withdrew, dropped, or
      terminated from July 1, 2004, through December 31, 2004, and January 1, 2006, to the
      present and return all Title IV, HEA program funds owed to the U.S. Department of
      Education (Department) or lenders, as appropriate, including the $37,277 identified for
      the students in our sample, and engage an independent public accountant to attest to the
      accuracy of the return of Title IV aid recalculations.
Final Report
ED-OIG/A06H0016                                                                        Page 2 of 57

   	 Obtain return of Title IV aid calculation training for any and all personnel responsible for
      administering the Title IV, HEA programs.

   	 Identify all late returns of Title IV aid made for students from July 1, 2004, to the present,
      including the 6 untimely return payments in our sample, and calculate and pay to the
      Department and lenders, as appropriate, the imputed interest and special allowance costs.

   	 Identify all late disbursements made to students from July 1, 2004, to the present,
      including the late disbursements for the students in our sample, and calculate and pay to
      the Department and lenders, as appropriate, the imputed interest and special allowance
      costs, including the return of the remaining $7,345 in prohibited loans kept by CCC that
      were disbursed late for the students in our sample.

   	 Review the records for all students who dropped out of school from July 1, 2004, to the
      present (excluding the 33 students in our sample), identify any who should have required
      Title IV, HEA program funds proration, and return any over awarded amounts owed to
      the Department or lenders, as appropriate, including the return of $2,461 for the students
      in our sample.

   	 Develop and implement policies and procedures to provide reasonable assurance that it
      (1) calculates return of Title IV aid in compliance with the requirements set forth in
      applicable regulations; (2) determines that a student withdrew no later than 14 days after
      the student’s last date of attendance; (3) meets the return of Title IV aid 45-day
      requirement; (4) verifies students are still eligible before Title IV disbursements are
      made; (5) identifies students progressing at a greater than minimum full-time rate and
      prorate the Title IV, HEA program funds; and (6) ensures the percentage of revenue
      derived from the Title IV, HEA programs is calculated in accordance with applicable
      regulations.

We also recommend that the COO for FSA require CCC to post a letter of credit (LOC)
commensurate with the untimely return of Title IV aid described in Finding No. 3.

We provided a draft of this report to CCC for review and comment on April 9, 2009. We
received CCC’s comments, along with additional documentation, on June 3, 2009. In its
comments, CCC did not concur with all aspects of the six findings presented in the draft report
and did not specifically address the recommendations. CCC’s comments are summarized at the
end of each finding. Based on CCC’s comments and our analysis of the additional
documentation, we revised Finding No. 5. We also clarified other findings but did not change
our conclusions or recommendations.

Except for information protected under the Privacy Act of 1974 (5 U.S.C. § 552a), the full text of
CCC’s comments on the draft report is included as an Enclosure to this report. We have not
included CCC’s attachments to its comments on the draft report because they were voluminous.
Copies of the attachments are available upon request.
Final Report
ED-OIG/A06H0016                                                                                    Page 3 of 57



                                            BACKGROUND 



Dental Directions, Inc., doing business as Community Care College, is a proprietary school
established in 1995 and located in Tulsa, Oklahoma. CCC is accredited by the Accrediting
Bureau of Health Education Schools. Dental Directions, Inc., also operates Clary Sage College
in Tulsa.1

CCC offers career and technical training programs leading to diplomas in Dental Assisting,
Massage Therapy, Medical Assisting, Pharmacy Technology, Surgical Technology, and
Veterinary Assisting; and Associate of Applied Science degrees in Business Administration,
Dental Assisting, Fitness and Health Training, Health Service Administration, Massage Therapy,
Pharmacy Technology, Surgical Technology, and Veterinary Assisting. The training programs
are offered in a non-term academic calendar and are measured in credit hours.

Prior to January 2007, CCC divided the various program weeks and credit hours in half (or in
quarters if a degree program) to determine the payment period. Each program had a different
academic year definition. For example, the Medical Assisting diploma program consisted of 37
weeks and 36.5 credits, which represented the academic year for that program. CCC divided the
number of weeks and the number of credits by 2 (and rounded) to identify the 2 payment periods
for the program (18 weeks and 18 credits for the first payment period; 19 weeks and 18.5 credits
for the second payment period). The Associate of Applied Science Medical Assisting degree
program consisted of 67 weeks and 66.5 credits, which represented two academic years for that
program. CCC divided the number of weeks and the number of credits by 4 (and rounded) to
identify the 4 payment periods for the program (17 weeks and 17 credits for the first three
payment periods; 16 weeks and 15.5 credits for the fourth payment period).

Effective January 2007, CCC changed its definition of an academic year and a payment period,
electing to use 30 weeks of instruction and 24 credit hours, with 15 weeks of instruction and
12 credit hours considered a payment period. This change caused the academic programs to
extend over the original one- and two-year academic years, depending on the individual
programs. For example, the same Medical Assisting diploma program identified above now has
three payment periods (15 weeks and 12 credits for the first 2 payment periods; 7 weeks and 12.5
credits for the third payment period). The Associate of Applied Science Medical Assisting
degree program identified above now has 5 payment periods (15 weeks and 12 credits for the
first 4 payment periods; 7 weeks and 18.5 credits for the fifth payment period). With the new
definition of the academic year, CCC considered students eligible for additional Title IV, HEA
program funds because the programs extended into a third payment period for diploma programs
and a fifth payment period for degree programs. However, students continue to progress at the
pre-January 2007 rate of one credit per week.

The purpose of the programs authorized by Title IV of the HEA is to provide financial assistance
to students attending eligible postsecondary higher education institutions. During award year

1
 Clary Sage College, which offers programs in cosmetology/spa career fields, was not approved to participate and
did not participate in the Title IV, HEA programs during award year 2006-2007.
Final Report
ED-OIG/A06H0016                                                                     Page 4 of 57

2006-2007, CCC participated in the Federal Pell Grant (Pell) and Federal Family Education Loan
(FFEL) programs. Pell Grants help financially needy students meet the cost of their
postsecondary education. FFEL Program loans enable a student or his or her parents to pay the
costs of the student’s attendance at postsecondary schools. During the award year 2006-2007,
CCC awarded approximately $1.8 million in Pell and $4.2 million in FFEL program funds to
826 students.

Other oversight entities previously identified instances of noncompliance by CCC.

   	 An on-site compliance review of CCC’s 2002 fiscal year by the Oklahoma State Regents
      for Higher Education identified inaccurate return of Title IV aid, untimely returns, and
      improper disbursements.
    The independent public accountant’s (IPA) 2005 compliance report identified ineligible
      disbursements, incorrect return of Title IV aid calculations, and late returns.
    A 2004 FSA program review found improper disbursements and return of Title IV aid
      calculations not documented or not performed.
    A 2006 FSA program review identified incorrect return of Title IV aid calculations and
      late returns of Title IV aid.

Due to the program review findings, CCC was required to obtain a LOC for $231,000, payable to
the Department. The expiration date of the LOC was October 31, 2008. However, CCC’s LOC
was released on June 12, 2008.
Final Report
ED-OIG/A06H0016                                                                      Page 5 of 57



                                     AUDIT RESULTS
	


For the 25 students in our sample, CCC generally complied with the HEA and regulations
governing student eligibility. In addition, CCC generally complied with the recruitment of
students and incentive compensation requirements. However, CCC did not comply with the
HEA and regulations governing the return of Title IV aid, disbursements, and the 90/10 Rule.
CCC (1) incorrectly calculated the amounts it was required to return to Title IV, HEA program
accounts; (2) untimely determined when students withdrew from CCC; (3) untimely returned
Title IV, HEA program funds; (4) improperly made late disbursements; (5) incorrectly prorated
Pell and FFEL disbursements; and (6) inaccurately calculated the percentage of revenue it
derived from the Title IV, HEA programs.

FINDING NO. 1 - Incorrect Return of Title IV Aid Calculations

CCC incorrectly calculated the amounts it was required to return to Title IV, HEA program
accounts. A student earns Title IV, HEA program funds on a pro-rata basis until the student
completes 60 percent or more of the payment period. For a non-term school, an institution must
use the student’s progress up to the point the student withdraws to project a completion date for
the payment period. The calculation of time does not include certain periods when the student
was not taking classes due to scheduled breaks or other specific reasons.

We randomly selected 33 students from the universe of 321 students who dropped out, withdrew,
or were terminated during award year 2006-2007. These 33 students received $149,720 in Title
IV, HEA program funds. CCC made errors in calculating the amount it was required to return to
Title IV, HEA program accounts for 28 of the 33 (85 percent) students. The most significant
error CCC made was not using the appropriate payment period end dates. CCC consistently
overstated the portion of a payment period that a withdrawn student had completed by not using
the student’s actual attendance to project when the student would have completed the credits for
the payment period. Other errors in the return of Title IV aid calculation were that CCC (a)
incorrectly accounted for non-scheduled periods; (b) incorrectly calculated the number of days in
institutional breaks; (c) incorrectly categorized Title IV, HEA program funds as could have been
disbursed or disbursed; (d) incorrectly determined the last date of attendance (LDA); and (e)
incorrectly calculated institutional charges.

Incorrect Payment Period End Dates

CCC determined the total number of calendar days in the payment period for the return of Title
IV aid calculations by using dates based on the number of weeks of scheduled instruction.
However, as students progressed through their educational programs, they did not always
complete their coursework within the established timeframes, and, as a result, the end dates for
their payment periods changed. Because CCC is a non-term credit hour institution, its students
cannot advance to the next payment period until they complete the work for the preceding
payment period. When students withdrew, CCC was required to determine the amount of
Title IV, HEA program aid the student earned using a realistic projection for the student’s
remaining coursework for the payment period. CCC did not ensure that the payment period end
Final Report
ED-OIG/A06H0016                                                                                      Page 6 of 57

dates used for the return of Title IV aid calculation reflected a realistic projection for the
student’s remaining coursework for the payment period. For example, students who failed to
earn credits for attempted courses needed to retake courses to complete their required number of
credits for the payment period. For these students, the payment period end date should have
been extended to include additional courses. By failing to make this adjustment when reviewing
the student’s files and performing the return of Title IV aid calculation, CCC was not using the
student’s actual payment period to determine the amount of unearned aid that should be returned.

Section 484B(d) of the HEA differentiates between credit-hour and clock-hour programs but
does not distinguish between credit-hour term programs and credit-hour non-term programs.
The Department provided additional guidance on the proper application of § 484B(d) by
institutions offering credit-hour, non-term programs in Dear Colleague Letter (DCL) GEN-04-
03, Revised (November 2004). This letter addresses a number of issues regarding the return of
Title IV aid for a student who withdraws from an institution. Under this guidance, the institution
needs to determine an appropriate date for when the student would be expected to complete the
period to determine how much of the period was completed at the point the student withdrew.
For programs where the ending date for a period is dependent on the pace at which an individual
student progresses through the program, the institution must project the completion date based on
the student’s progress.

        We recognize that in a credit-hour nonterm [sic] program, the ending date for a
        period and, therefore, the total number of calendar days in the period, may be
        dependent on the pace at which an individual student progresses through the
        program. Therefore, for a student who withdraws from a credit-hour nonterm
        [sic] program where the completion date of the period is dependent on an
        individual student’s progress, an institution must project the completion date
        based on the student’s progress as of his or her withdrawal date to determine the
        total number of calendar days in the period.

CCC provides credit-hour, non-term programs that allow students to schedule courses to meet
their individual needs. In its catalog, CCC describes the schedule as a continuous term. Students
can schedule and start the 2- or 3-week courses as needed and are not restricted to a set schedule
as a group. A student’s academic year begins with the first eligible course of the student’s
degree or certificate program and ends when the student completes a defined number of weeks
and credits.2 The academic year has no calendar time constraints and continues until both the
credit and week requirements are met.

CCC students were allowed to miss extended periods of non-scheduled time.3 This non-
scheduled time was treated as a leave of absence (LOA) or scheduled school break in the return
of Title IV aid calculation. Despite having procedures for reviewing and revising the dates for
the student’s academic year and corresponding payment periods, CCC did not always review the
appropriateness of the payment period end date before performing return of Title IV aid
calculations for 19 of the 33 students in our sample. For example, CCC reviewed and re-
established payment period end dates when students had not completed the number of credits or

2
 The defined number of weeks and credits depends on the student’s degree or certificate program.
3
 CCC defines non-scheduled time as a period in which the student is not scheduled for classes but is not on an
official leave of absence or withdrawn from CCC.
Final Report
ED-OIG/A06H0016                                                                                        Page 7 of 57

weeks required for subsequent Title IV, HEA program disbursements. CCC usually rescheduled
the date for the second or subsequent disbursement by reviewing the student’s schedule,
attendance, and grades and then projecting when the student would likely meet the credits and
weeks requirement. Although CCC acknowledged the need and had the capability to adjust
payment period end dates in these circumstances, CCC failed to review and make similar
adjustments when calculating the amount to return to Title IV program accounts.

Other Return of Title IV Aid Calculation Errors

CCC, for the 33 return of Title IV aid calculations in our sample, (a) incorrectly accounted for
non-scheduled periods in 10 calculations, (b) incorrectly calculated the number of days in the
institutional breaks in 4 calculations, (c) incorrectly categorized Title IV, HEA program funds as
could have been disbursed4 or disbursed in 11 calculations, (d) incorrectly determined the LDA
in 10 calculations, and (e) incorrectly calculated institutional charges in 21 calculations. Return
of Title IV aid is based on determining the correct amount of Title IV, HEA program funds the
student earned for the payment period at the point he or she withdrew or stopped attending.
After an institution identifies the correct dates for the length of the payment period using a
projected completion date and the student’s withdrawal date, it can determine the percentage of
the payment period that a student completed. This process requires knowing not only the start
date, end date, and withdrawal date, but it also requires the removal of blocks of time such as
scheduled breaks of more than five days (34 C.F.R. § 668.22(f)(2)). 5 The institution then must
calculate the amount of earned Title IV, HEA program funds by applying a percentage to the
total amount of Title IV, HEA program assistance that was disbursed and that could have been
disbursed at the time of withdrawal. For example, when a school determines the treatment of
Title IV, HEA program funds on a payment period basis, the student’s Title IV, HEA program
assistance to be used in the calculation is the aid that is disbursed or that could have been
disbursed for the payment period. Also, the institutional charges used in the calculation would
have to reflect the charges for the payment period.

Pursuant to 34 C.F.R. § 668.22(e)(1), the amount of Title IV, HEA program funds that is earned
by the student is calculated by—

         (i) Determining the percentage of title IV grant or loan assistance that has been
         earned by the student, as described in paragraph (e)(2) of this section; and

          (ii) Applying this percentage to the total amount of title IV grant or loan
          assistance that was disbursed (and that could have been disbursed, as defined in
          paragraph (l)(1) of this section) to the student, or on the student's behalf, for the
          payment period or period of enrollment as of the student's withdrawal date.

4
  Pursuant to 34 C.F.R § 668.22(l)(1), Title IV, HEA program funds that “could have been disbursed” are
determined in accordance with the late disbursement provisions in § 668.164(g). According to 34 C.F.R.
§ 668.164(g)(2), a student who becomes ineligible (or the student's parent in the case of a PLUS loan) qualifies for a
late disbursement if, before the date the student became ineligible “(i) Except in the case of a PLUS loan, the
Secretary processed a Student Aid Report or Institutional Student Information Report with an official expected
family contribution; and (ii)(A) For a loan under the FFEL or Direct Loan programs, the institution certified or
originated the loan; or (B) For an award under the Federal Perkins Loan or Federal Supplemental Educational
Opportunity Grant programs, the institution made that award to the student.
5
  C.F.R. citations are from the July 1, 2005, edition.
Final Report
ED-OIG/A06H0016                                                                          Page 8 of 57

In addition, accounting for non-scheduled periods, determining the LDA, and calculating the
number of days in the institutional breaks in the return of Title IV aid calculations are critical in
determining the number of calendar days in a payment period. Pursuant to 34 C.F.R.
§ 668.22(f)(2)—

        (i) The total number of calendar days in a payment period . . . includes all days within the
        period, except that scheduled breaks of at least five consecutive days are excluded from
        the total number of calendar days in a payment period . . . and the number of calendar
        days completed in that period.

        (ii) The total number of calendar days in a payment period . . . does not include days in
        which the student was on an approved leave of absence.

Inadequate Internal Control Caused Errors That Resulted in CCC Returning Over
$37,000 Less Than It Should Have Returned to Title IV, HEA Program Accounts

By incorrectly determining the number of calendar days in a payment period for students who
withdrew, CCC understated the number of days for the return of Title IV aid calculation.
Because the number of days in the payment period is used as the denominator for calculating the
percentage of the payment period completed, an understated number of total days resulted in a
higher percentage of completion. Consequently, a higher percentage of completion increases the
amount of Title IV, HEA program aid calculated as earned by the student. Of the 33 students we
reviewed, CCC incorrectly calculated the amount of Title IV, HEA program funds that 28
students earned. CCC also returned incorrect amounts of Title IV, HEA program funds for those
students, underestimating the amount of Title IV, HEA program funds to be returned by $37,277.
The dollar effect of the errors varied from student to student, ranging from CCC returning $592
more than it should have to CCC returning $4,890 less than it should have returned. Based on
our sample results, we are 90 percent confident that CCC incorrectly calculated the amounts it
was required to return for between 228 (71 percent) and 299 (93 percent) of the 321 students
who dropped out during award year 2006-2007.

CCC management did not ensure that CCC had a system of internal control in place that would
provide reasonable assurance that it complied in all material respects with the Title IV, HEA
program regulations. CCC management did not ensure that staff completing return of Title IV
aid calculations were properly trained and did not monitor staff performance to ensure that they
complied with Title IV, HEA program regulations and guidance. In addition, CCC used an in-
house return of Title IV aid calculation program that required manual entry of various data fields.

Recommendations

We recommend that the COO for FSA require CCC to:

1.1		   Recalculate all return of Title IV aid calculations for students who withdrew, dropped, or
        terminated from July 1, 2004, through December 31, 2004, and January 1, 2006, to the
        present and return all Title IV, HEA program funds owed to the Department or FFEL
        lenders, as appropriate. Include the return of under-returned amounts, totaling $37,277,
        identified to the students in our sample.
Final Report
ED-OIG/A06H0016                                                                          Page 9 of 57

1.2		   Engage an independent public accountant to attest to the accuracy of the return of Title
        IV aid recalculations.

1.3		   Develop and implement policies and procedures to provide reasonable assurance that
        return of Title IV aid calculations are completed in compliance with the requirements.

1.4		   Obtain return of Title IV aid calculation training for any and all personnel responsible for
        administering the Title IV, HEA programs.

CCC’s Overall Comments

CCC had some overarching disagreements with the draft audit report. Specifically, CCC stated
that five of the six findings were at least partially dictated by OIG’s inaccurate conclusion that
CCC offers self-paced programs and OIG’s confusion about the correct date of determination for
making returns of Title IV aid. According to CCC, the inaccurate determination that CCC
provides self-paced programs results in additional erroneous conclusions that CCC:
(1) incorrectly calculated return to Title IV (Finding No. 1); (2) made untimely determinations of
student withdrawals (Finding No. 2); (3) returned Title IV funds in an untimely manner (Finding
No. 3); (4) improperly disbursed funds to students after they withdrew (Finding No. 4); and
(5) incorrectly pro-rated Pell and FFEL (Finding No. 5).

CCC contends that students at CCC are required to proceed through a program according to the
schedules identified in their enrollment agreement and school catalog. In each instance, the
student’s schedule reflects finite start and end dates for each modular course. CCC
acknowledged that its students can possibly proceed through programs at varying rates if there
are interruptions in their ability to attend courses, by failing a course, etc. The fact that students
start on the same date in the same program but ultimately conclude the program on different
dates is not indicative of a self-paced program but evidence that some student’s education is
interrupted by events such as failing a course or having to take a leave of absence. CCC
contends that it is a non-term credit-based school providing education through a modular course
structure as opposed to a school offering self-paced programs. CCC also contends the draft audit
report confuses the fundamental elements of a self-paced program in rendering Finding Nos. 1
through 5 because it focused on interruptions in some student’s studies.

CCC also maintains that it is more likely that the conclusions in the draft audit report are
inaccurate because they are inconsistent with the review and approvals issued by its primary
regulators and Title IV professionals who have significantly greater familiarity with CCC and
similarly situated schools. CCC argues that the OIG’s audit commenced only three months after
CCC was removed from Heightened Cash Monitoring Two (HCM2) in April 2007. Because the
findings in the draft audit report were delayed so long, it references a timeframe no longer
relevant. CCC resolved most deficiencies occurring in the time frame of the draft audit report
during the HCM2 reimbursement process. In addition, CCC officials contend that they were
subjected to extensive scrutiny by various regulators, such as the Department, and Title IV, HEA
consultants and it’s IPA for the time period before, during, and after award year 2006-2007, the
subject of the draft audit report. That scrutiny involved all aspects of Title IV, HEA program
compliance including Title IV, HEA program policies, regulatory interpretations, and methods of
implementing Title IV, HEA program-related policies
Final Report
ED-OIG/A06H0016                                                                      Page 10 of 57

OIG Response to CCC's Overall Comments

We made some revisions to the findings in this report and clarified some of the
recommendations. However, we did not change our overall conclusions. We concluded that
CCC’s students were allowed to progress at their own pace based on discussions with CCC
management staff and our review of student files. During a discussion regarding the 14-day
determination requirement, CCC’s Financial Aid Director stated that determinations are made on
a case-by-case basis because students are allowed to progress at their own pace. When we asked
about students progressing at one’s own pace and its impact on return of Title IV aid
calculations, CCC's Chief Financial Officer stated that CCC was not a self-paced school.

Though we agree that CCC, as defined in its catalog, is not a self-paced school, CCC officials
treat students as progressing at their own pace when making withdrawal determinations but then
ignore that process for return of Title IV aid calculation purposes. Our conclusion is consistent
with documentation in the students’ files; therefore, we recalculated the return of Title IV aid
calculations using this process.

Because students earn Title IV, HEA program funds on a pro rata basis until a student completes
more than 60 percent of the payment period, the progression method for determining the end of a
payment period is the best way to obtain an accurate payment period end date. A non-term
school such as CCC must use the student’s progress up to the point the student withdraws to
project a completion date for the payment period. The calculation of time does not include
certain periods when the student was not taking classes due to scheduled breaks or other specific
reasons. Our recalculation showed that CCC consistently overstated the portion of a payment
period a withdrawn student had completed because CCC did not use the student’s actual
attendance to project when the student would have completed the credits for that payment period.

We are aware of the various reviews conducted at CCC, and we had discussions with FSA and
the Oklahoma Board of Private Vocational Schools. However, the reviews by the other entities
did not always include an in-depth review of all aspects of CCC’s Title IV, HEA program.
Under HCM2 imposed by FSA, FSA reviewed only a sample of return of Title IV aid
calculations. None of the students we included in this report were reviewed by FSA as part of its
HCM2 process.

CCC Comments and OIG Responses to Finding No. 1

CCC Comments. CCC did not concur with the finding in its entirety and did not specifically
address the recommendations in it response. CCC disagreed with the OIG’s conclusion that
CCC offers self-paced programs and its reliance on guidance from Dear Colleague Letter GEN-
04-03, Revised (November 2004) (“DCL GEN-04-03”). CCC contends that this conclusion and
reliance are unjustified and inaccurate as applied to CCC. CCC contests the finding with respect
to the remaining students alleged to have been improperly categorized.

OIG Response. Based on information that we obtained from CCC’s students’ files, discussions
with CCC staff, and CCC’s response to the draft audit report, we concluded that CCC’s students
are allowed to proceed through their programs at varying rates if there are interruptions in their
ability to attend courses, by failing a course, etc. Even though CCC officials deny that CCC has
self-paced programs, they agree that CCC allows students to proceed through their programs at
Final Report
ED-OIG/A06H0016                                                                        Page 11 of 57

varying rates. We are not concluding that CCC officially offers self-paced programs. Rather, we
are stating that, in practice, CCC allows students to progress at their own pace. Regardless of
what term (varying rate or self-paced) is used, for non-term institutions such as CCC, students
earn Title IV, HEA program funds on a pro rata basis until a student completes more than 60
percent of the payment period. The institution must use the student’s progress up to the point the
student withdraws to project a completion date for the payment period. The calculation of time
does not include certain periods where the student was not taking classes due to scheduled breaks
or other specific reasons.

In regards to the other aspects of Finding No. 1:

Incorrectly Accounted for Non-Scheduled Periods in 10 Calculations

CCC Comments. CCC disagrees with the OIG’s position that CCC improperly handled non-
scheduled periods as institutional breaks instead of counting those periods as absences in the
return of Title IV aid calculation. CCC contends that these errors eliminate any credibility in
OIG’s most significant assertion in Finding No. 1 and undermines its claim that the school failed
to use the correct payment period end dates. CCC contends that non-scheduled periods occur
when extenuating circumstances interrupt a student’s ability to attend one or more of his or her
originally scheduled courses. In those instances, the student may request course rescheduling for
a future date. CCC contends that there is no regulatory requirement that a student must be
counted absent during periods they were not scheduled to attend. If students fail to attend a
scheduled course, they are counted absent. However, they are not absent merely because they
are not on campus during an arranged break while waiting for a future course.

OIG Responses. CCC students were allowed to have extended non-scheduled periods because of
personal reasons, not because the course was not being offered. The Federal Student Aid
Handbook states that

       A student who completes a course is expected to begin attending the next
       available course in the program, until the student completes the credits for which
       he or she has received Federal Student Assistance. If before a student completes
       the credits for which he or she has received Title IV, the student fails to enroll in
       the next course in the program, the student must be put on an approved LOA or
       considered withdrawn.

Incorrectly Calculated the Number of Days in the Institutional Breaks in 4 Calculations

CCC Comments. CCC concedes that it incorrectly calculated the number of institutional break
days in 4 of the 33 sample calculations (12 percent) and discussed oversight with the OIG during
its audit fieldwork. CCC made immediate changes implementing corrective action.

OIG Response. CCC agreed with this portion of the finding.
Final Report
ED-OIG/A06H0016                                                                     Page 12 of 57

Incorrectly Categorized Title IV, HEA Program Funds As Could Have Been Disbursed or
Disbursed in 11 Calculations

CCC Comments. CCC concedes that it incorrectly categorized aid with respect to 4 of the 33
(12 percent) sample students. However, CCC contests the finding with respect to the remaining
students alleged to have been improperly categorized. CCC relies upon the same analysis it
provides with respect to Finding No. 2 to refute this portion of Finding No. 1.  Specifically, CCC
stated that the OIG erroneously asserts that CCC should have made earlier determinations to
drop the students and that an earlier determination would have affected the relative aid
classifications for those students.

OIG Response. While CCC conceded that it incorrectly categorized aid for four students, it did
not provide any additional support for the other seven students identified in the finding.
Therefore, we did not change the report.

Incorrectly Determined the LDA in 10 Calculations

CCC Comments. CCC disagrees that it incorrectly determined the LDA in 10 of the 33 sample
return of Title IV aid calculations. The 10 students had periods of non-attendance due to a break
in schedule between courses. CCC alleges that the OIG objects to students being allowed to
subsequently resume their studies after a break in schedule even if the students make specific
commitments to return to school.

OIG Response. CCC is incorrect in its assumption that all of the incorrect LDAs were a result of
the OIG’s position regarding timely determinations of the students’ withdrawal date. Three of
the incorrect dates included in this finding are a result of CCC identifying the wrong LDA from
the students’ attendance records. For example, for one student, the student’s attendance records
first showed that the LDA was January 26, 2006. However, CCC determined the student’s LDA
was January 12, 2007, a date on which the student was not enrolled in class. The remaining
students who CCC states made specific commitments to return to school rarely, if at all, resumed
attendance, attending as few as 3 days during the 13 weeks following the date we concluded
should have been the student’s LDA.

Incorrectly Calculated Institutional Charges in 21 Calculations

CCC Comments. CCC contends that it accurately prorated the charges consistent with the
guidance provided by the Department and according to Federal guidelines. CCC contends that
the OIG maintains that prorated charges should be based upon each academic year of tuition,
fees, and books as reflected on the enrollment agreement. CCC states that the OIG further
maintains that the resulting amount should be divided into two payment periods because CCC
utilizes two payment periods in its related policy. However, CCC claims that the OIG fails to
recognize that CCC posts all tuition, fees, and book charges to student accounts at the time of
enrollment without regard of the number of payment periods in the student’s program.

OIG Response. We used the prescribed method when recalculating the return of Title IV aid
calculations. According to the Federal Student Aid Handbook
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ED-OIG/A06H0016                                                                                       Page 13 of 57

         If, for a non-term or nonstandard term program, a school chooses to calculate
         Returns on a payment period basis, but the school charges for a period longer than
         a payment period (e.g., period of enrollment), total institutional charges for the
         period will be the greater of the –

             	 Prorated institutional charges for the period, or

             	 The amount of Title IV assistance retained for institutional charges as of
                the student’s date of withdrawal.

FINDING NO. 2 - Untimely Determination of Student Withdrawal

CCC did not determine that students withdrew within 14 days of the students’ last dates of
academic attendance. We randomly selected 33 students from the universe of 321 students who
received Title IV, HEA program funds and dropped out, withdrew, or were terminated during
award year 2006-2007. CCC exceeded the 14-day period for 27 of the 33 (82 percent). The
number of days that CCC exceeded the 14-day period ranged from 2 to 398.

According to 34 C.F.R. § 668.22(b)(3)(i), “[a]n institution is required to take attendance if an
outside entity . . . has a requirement, as determined by the entity, that the institution take
attendance.” Under 34 C.F.R. § 668.22(b)(1), the withdrawal date for a student who withdraws
from an institution that is required to take attendance “is the last date of academic attendance as
determined by the institution from its attendance records.” CCC is required to take attendance
by the State of Oklahoma.6

Dear Colleague Letter GEN-04-03, Return of Title IV Aid, Revised (November 2004), states,

         Except in unusual instances, at an institution that is required to take attendance,
         [the Department of Education] would expect that the date of the institution’s
         determination that the student withdrew would be no later than 14 days after the
         student's withdrawal date—the last date of academic attendance as determined by
         the institution from its attendance records.

Although aware of the 14-day period expected by the Department and the existence of an
attendance system that could record daily attendance, CCC officials chose to make
determinations of student withdrawal in accordance with their own policy for unofficial
withdrawals. That policy states “If a student fails to attend classes for a period of 30 consecutive
scheduled class days, CCC will unofficially withdraw the student.” Under this policy, a student
could miss 45 or more calendar days before triggering CCC’s unofficial withdrawal
determination. Because the policy specifies scheduled class days, students without scheduled
classes could miss even more days and not trigger an unofficial withdrawal determination.



6
 Section 565:10-11-4(a) of the Oklahoma Administrative Code states, “The school shall maintain individual records
for each student enrolled, which are cu rrent, complete and accurate, an d will reveal th e following information . . .
(2) Date student enrolled and completed . . . (5) Student attendance, which shall be kept daily indicating present or
absent . . . .”
Final Report
ED-OIG/A06H0016                                                                      Page 14 of 57

CCC officials contend that the regulations do not require the student to be dropped after 14 days
of nonattendance, only that a determination as to whether the student will return needs to be
made. However, CCC neither provided any documentation to support that it made such
determinations within the 14 days nor described the basis on which it made the determinations.
Therefore, unnecessarily long periods passed before CCC determined that students had
withdrawn and performed the corresponding return of Title IV aid calculations. As a result,
more interest accrued on students’ unsubsidized loans, and the government paid more special
allowance and interest on the subsidized loans.

Recommendation

We recommend that the COO for FSA require CCC to:

2.1 	   Develop and implement policies and procedures to provide reasonable assurance that it
        determines that a student withdrew no later than 14 days after the student’s last date of
        attendance.

CCC Comments

CCC contends that the OIG is confused about the purpose and meaning of the 14-day rule
discussed in DCL GEN-04-03. According to CCC, the 14-day rule is used solely to determine
the date of determination for return of Title IV aid purposes. Because the rule only has relevance
in the context of determinations of the amount and timing of any amounts due to be returned
pursuant to the return of Title IV, HEA program requirements, CCC is unclear why the OIG cites
the letter in the context of Finding No. 2. CCC further states that it is apparent that the OIG
erroneously concluded that DCL GEN-04-03 has relevance for use in determining if and when to
drop a student. As a result, CCC states that this finding should be removed from this report.

With respect to this finding, CCC states that the OIG’s fundamental observation is that it was
unable to find documentation of CCC’s interaction with students in the context of determining
withdrawals. The comments attributed to officials at CCC confirm those officials properly
understand the requirements of unofficial withdrawal determinations.

CCC stated that it’s Title IV, HEA program management and documentation capabilities have
improved significantly with a centralized database for maintaining all student communications.
The student records database also improves controls for monitoring and enforcing policies and
procedures as recommended in the draft of this report.

OIG Response

In the Decision of the Secretary In the matter of College America-Denver (Docket No. 06-24-
SP), the Secretary upheld and confirmed the requirements of DCL GEN-04-03 regarding the
timely return of Federal funds for institutions required to take attendance. In this decision, the
Secretary found that 14 days is a reasonable assessment of when a school should have made the
determination that a student ceased attendance. The ruling also stated that the timely return of
Federal funds is important for two significant reasons: (1) institutions are not entitled to keep
Federal funds that are not earned, and (2) a timely return of Federal funds allows access by other
students in need to a necessarily limited supply of student financial assistance. At least two dates
Final Report
ED-OIG/A06H0016                                                                         Page 15 of 57

are critical to the assessment of whether funds were timely returned to the Federal government
when a student drops out or withdraws: (1) the date the student withdrew or the institutions
became aware that the student withdrew, and (2) the date when the time period expires for
returning; the later timeframe depends upon the former timeframe.

CCC’s failure to make withdrawal determinations within 14 days affected several aspects of the
return of Title IV aid and disbursements and contributed to several other findings in this report.
By not making timely determinations of students’ withdrawal dates, the school made incorrect
LDA determinations (Finding No. 1), did not return Title IV, HEA program funds in a timely
manner (Finding No. 3), and improperly disbursed Title IV, HEA program funds to students who
had withdrawn (Finding No. 4).

CCC stated that it has implemented a corrective action plan. However, we have not had the
opportunity to audit the new procedure, so we cannot conclude on the effectiveness of the
change.

FINDING NO. 3 - Untimely Return of Title IV, HEA Program Funds

CCC did not return Title IV, HEA program funds in a timely manner. We randomly selected
33 students from the universe of 321 students who received Title IV, HEA program funds and
dropped out, withdrew, or were terminated during award year 2006-2007. CCC calculated an
amount to be returned for 25 and calculated no return due for 8. Of the 25 return of Title IV aid
calculations, 6 return payments, totaling $2,283, were made more than 45 days after CCC
determined that the students withdrew. The 6 return payments were for 5 students. Three of the
6 late payments were for corrected amounts of returns made at earlier dates. CCC made late
returns for 5 of 33 (15 percent) students in the sample. However, because CCC did not
determine the students’ LDA timely, we determined that a total of 13 return payments were late.
The 13 return payments were for 10 students (30 percent of the sample returns). The range of
these late returns was from 3 to 99 days past the 45 days from CCC’s determination.

According to 34 C.F.R. § 668.22(j)(1), “[a]n institution must return the amount of title IV funds
for which it is responsible . . . as soon as possible but no later than 45 days after the date of the
institution’s determination that the student withdrew . . . .” Pursuant to 34 C.F.R.
§ 668.173(b)(1), “an institution returns unearned title IV, HEA funds timely if . . . [t]he
institution deposits or transfers the funds into the bank account it maintains [for Title IV
purposes] no later than 45 days after the date it determines that the student withdrew . . . .”

Pursuant to 34 C.F.R. § 668.173(c)(1)(i)—

       An institution does not comply with the reserve standard under . . . if, in a
       compliance audit conducted . . . by the Office of the Inspector General . . . the
       auditor or reviewer finds . . . [i]n the sample of student records audited or
       reviewed that the institution did not return unearned title IV, HEA program funds
       within the timeframes described in paragraph (b) of this section for 5% or more of
       the students in the sample.

If an institution does not meet this compliance threshold for either of its two most recently
completed fiscal years, it must submit an irrevocable LOC to the Department as described in
Final Report
ED-OIG/A06H0016                                                                       Page 16 of 57

34 C.F.R. § 668.173(d). CCC’s fiscal year is the same as its calendar year (January 1, 2006,
through December 31, 2006). CCC’s fiscal year 2006 and award year 2006-2007 overlap from
July 1, 2006, through December 31, 2006. CCC exceeded the 45-day limit for 15 percent of the
students in our sample for whom a return of unearned Title IV funds was made during the award
year 2006-2007, and the dates of determination for all these late payments were during the last
six months of 2006. Therefore, CCC exceeded the compliance threshold for its 2006 fiscal year.

Although CCC officials were aware of the 45-day requirement in 34 C.F.R. § 668.22(j), they did
not process all returns of Title IV aid in a timely manner. As a result, more interest accrued on
students’ unsubsidized loans, and the government paid more special allowance and interest on
the subsidized loans.

Recommendations

We recommend that the COO for FSA require CCC to:

3.1 	   Identify all late returns of Title IV, HEA program funds made to students from
        July 1, 2004, to the present, including the six untimely return payments in our sample,
        and calculate and pay to the Department and FFEL Program lenders, as appropriate, the
        imputed interest and special allowance costs.

3.2 	   Develop and implement policies and procedures to meet the return of Title IV aid 45-day
        requirement in 34 C.F.R. § 668.22.

We also recommend that the COO for FSA:

3.3 	   Post a LOC commensurate with the conditions in this finding.

CCC Comments

CCC stated that the finding is inconsistent with information that OIG provided to CCC after the
draft audit report was issued. CCC also stated that the request for a LOC is unjustified because
CCC satisfies the regulatory requirement for timely returns of Title IV, HEA program funds.

OIG Response

This finding has two parts: (1) the information for the five students presented in the first part of
this finding and (2) the information covering the five students identified in Finding No. 2. We
provided the information we used as support for both this finding and Finding No. 2 to CCC. At
that time, CCC did not request additional clarification. By not making withdrawal
determinations in accordance with the requirements presented in Finding No. 2, CCC
exacerbated the untimely return of Title IV, HEA program funds. Therefore, regulations require
CCC to post a LOC.
Final Report
ED-OIG/A06H0016                                                                       Page 17 of 57

FINDING NO. 4 - Improper Disbursements to Students Who Withdrew

CCC disbursed Title IV, HEA program funds to students who withdrew, disbursing amounts
after the students’ were no longer enrolled. We randomly selected 33 students from the universe
of 321 students who received Title IV, HEA program funds and dropped out, withdrew, or were
terminated during award year 2006-2007. For 20 of the 33 (61 percent), CCC made improper
Pell or FFEL late disbursements, or both, between 3 to 105 days after the student’s last date of
attendance.

According to 34 C.F.R. § 668.164—

       (b)(1) . . . Except as provided in paragraph (g) of this section, an institution may
       disburse title IV, HEA program funds to a student or parent for a payment period
       only if the student is enrolled for classes for that payment period and is eligible to
       receive those funds . . . .
       (g) Late disbursements--(1) Ineligible student. For purposes of this paragraph, an
       otherwise eligible student becomes ineligible to receive title IV, HEA program
       funds on the date that—
       (i) For a loan under the FFEL and Direct Loan programs, the student is no longer
       enrolled at the institution as at least a half-time student for the period of
       enrollment for which the loan was intended; or (ii) For an award under the Federal
       Pell Grant, FSEOG, and Federal Perkins Loan programs, the student is no longer
       enrolled at the institution for the award year. . . . (4)(ii) An institution may not
       make a second or subsequent late disbursement of a loan under the FFEL or
       Direct Loan programs unless the student successfully completed the period of
       enrollment for which the loan was intended. (iii) An institution may not make a
       late disbursement of a loan under the FFEL or Direct Loan programs if the student
       was a first-year, first-time borrower unless the student completed the first 30 days
       of his or her program of study.

CCC did not have procedures in place to verify students were still eligible before Pell and FFEL
disbursements were made. Also, CCC’s untimely determination of student withdrawal was a
factor.

As a result of CCC disbursing funds after the students’ LDA, students received Pell and FFEL
amounts for which they were not eligible and were charged with responsibility for FFEL
amounts that were prohibited. In addition, students and the government incurred and paid
interest on FFEL amounts that should never have been disbursed. For the 20 students, CCC
disbursed $81,311 in Title IV, HEA program funds late. CCC disbursed $17,625 in Pell and
$63,686 in FFEL loans late, including $45,847 (72 percent) in FFEL loans that was prohibited
from being disbursed because the student was enrolled for less than 30 days ($29,618) or it was a
second or subsequent loan disbursement ($16,229). CCC returned all but $7,345 (or 16 percent)
of the prohibited loan disbursements. CCC returned ineligible funds an average of 84 days after
the funds were disbursed. The returns ranged from 6 days before the disbursement (this
appeared to be a timing issue due to CCC being on HCM2) to 252 days after the disbursements.
Based on our sample results, we are 90 percent confident that CCC disbursed Title IV, HEA
program funds late to students who withdrew, disbursing amounts after the students’ LDA for at
Final Report
ED-OIG/A06H0016                                                                     Page 18 of 57

least 144 (45 percent) of the 321 students who received Title IV, HEA program funds and
withdrew during award year 2006-2007.

Recommendations

We recommend that the COO for FSA require CCC to:

4.1 	   Identify all late FFEL disbursements made to students from July 1, 2004, to the present,
        including the late disbursements for the 20 students in our sample, and calculate and pay
        to the Department and FFEL Program lenders, as appropriate, the imputed interest and
        special allowance costs. Include the return of the remaining $7,345 in prohibited loans
        kept by CCC that were disbursed late for the students identified in our sample.

4.2 	   Develop and implement policies and procedures to verify students are still eligible before
        Pell and FFEL disbursements are made.

CCC Comments

CCC contends that the audit report contains a mistake regarding the OIG’s claims that CCC
made improper disbursements to students who had withdrawn from school. CCC claims that the
OIG equates enrollment with attendance despite the fact that they are not the same. According to
CCC, the date a school determines that a student should be withdrawn, the student is still
enrolled. However, the OIG concludes that payments or disbursements of Title IV, HEA
program funds cannot be made after the LDA. OIG maintains that CCC disbursed funds after
students’ LDA. CCC says that this statement may be true, but it does not comport with the
regulations and does not establish a violation of the regulations. As a result, CCC comments that
the conclusions and amounts identified in this finding are inaccurate and must be recalculated
and presented on a student-by-student basis before CCC can provide a complete response. CCC
stated that to the extent the OIG measured tardy disbursements from the LDA as opposed to the
date of determination, it is almost certain that the OIG has overstated its case in the context of
this finding. Therefore, CCC asserts that, if the OIG used the date that the funds were received
by the school while it was on reimbursement, then the OIG incorrectly determined that the
disbursements were late. The funds should have been considered disbursed when posted by the
school to the student ledgers prior to submitting the HCM2 reimbursement request.

OIG Response

We agree that the regulations allow for Title IV, HEA program funds to be disbursed as of the
date of the institution’s determination that a student withdrew. However, because CCC was not
making those determinations within the required time frame, the funds were being disbursed
after the 14 day determination window and well after the amount of time the Department –as
stated in the Secretary’s decision In the matter of College America-Denver – considers
reasonable.
Final Report
ED-OIG/A06H0016                                                                     Page 19 of 57

FINDING NO. 5 - Incorrect Prorating of Pell and FFEL

CCC did not correctly calculate the amount of Pell and FFEL funds to which students were
entitled to receive for their last payment periods. We randomly selected 33 students from the
universe of 321 students who dropped out, withdrew, or were terminated during the audit period.
Of those 33 students, 15 students’ return of Title IV aid calculations used CCC’s new academic
year definition (30 weeks of instruction and 24 credit hours). CCC did not prorate Pell and
FFEL for 3 of the 15 students (20 percent) who withdrew under the new academic year
definition.

According to 34 C.F.R. § 690.63(e) and 34 C.F.R. § 682.204(a) and (d), an institution must
prorate amounts for students who progressed at a greater than minimum full-time rate and have a
remaining portion of the program to complete that is less than an academic year for both
programs.

In January 2007, CCC changed its definition of an academic year to 30 weeks of instruction and
at least 24 credits completed. This change caused the academic programs to extend over the
original one- and two-year academic years, depending on the individual programs. With the new
definition of the academic year, CCC considered students eligible for additional Title IV, HEA
program funds because the programs extended into a third payment period for diploma programs
and a fifth payment period for degree programs.

CCC should have prorated the amount of Title IV, HEA program funds available to the student
in his/her last payment period. However, CCC did not have a process in place to identify
students progressing at a greater than minimum full-time rate for prorating the Title IV, HEA
program funds. Because it did not prorate the last disbursement, CCC disbursed $2,461 more
than it should have to 3 of the 33 students in our sample.

Recommendations

We recommend that the COO for FSA require CCC to:

5.1 	   Review the records for all students who dropped out of school from July 1, 2004, to the
        present (excluding the 33 students in our sample), identify any who should have required
        Title IV, HEA program funds proration, and return any over awarded amounts owed to
        the Department or FFEL lenders, as appropriate. Include the return of $2,461 for the
        students in our sample.

5.2 	   Develop and implement policies and procedures to identify students progressing at a
        greater than minimum full-time rate and prorate the Title IV, HEA program.

CCC Comments

CCC finds the two referenced points contradictory. First, OIG states that CCC’s programs are
structured to earn one credit for each week of instruction; then, it alleges that CCC’s programs
are self-paced and allow students to attend and earn credits at their own pace. According to
CCC, the self-paced conclusion is wrong. CCC contends that the OIG erroneously asserts that
students earn one credit hour per week. While sometimes accurate, it is not uniformly accurate
Final Report
ED-OIG/A06H0016                                                                      Page 20 of 57

because CCC’s programs incorporate a number of courses of varying length. The regulations do
not require institutions to use an academic year definition reflecting every possible program
schedule. Rather, schools are required to define an academic year for each program that includes
a minimum of 30 weeks and 24 semester credits are available for that period. CCC states that it
meets that regulatory requirement.

Each alleged pro-rating error occurred during the period CCC was on HCM2. Therefore, CCC
claims that the Department already reviewed and approved CCC’s treatment in those instances.
FSA would have to evaluate and approve those calculations before approving the related
disbursements.

OIG Response

We agree with CCC’s assertions that its students can earn one credit hour per week and that the
regulations do not require an academic year definition reflecting every possible program
schedule. Therefore, we clarified the finding. The clarification does not change our conclusions
or recommendations.

Under HCM2, only a sample of transactions is reviewed. There is no evidence that the students
we include in this finding were part of the sample and subsequent approval.

FINDING NO. 6 - Improper Preparation of the 90/10 Rule Calculation

CCC did not calculate the percentage of revenue derived from the Title IV, HEA programs for its
fiscal year 2006 in accordance with federal regulations. In calculating the percentage, CCC
included revenue of $28,430 from Clary Sage College services in the denominator of the
calculation even though Clary Sage College was not approved for certification and was not a
participating institution. CCC also included revenue of $83,921 from its child care center in the
denominator of the calculation. However, CCC did not provide support that the childcare facility
was used to provide educational instruction to those students in the Medical Assisting and Dental
Assisting programs. In addition, CCC

   	 Misclassified $40,803, (1) with $11,675 representing Title IV, HEA program
      revenue/excess cash transactions treated as non-Title IV, HEA program revenue/excess
      cash and (2) $29,128 representing non-Title IV, HEA program revenue/excess cash
      transactions treated as Title IV, HEA program revenue/excess cash;
    Included $15,215 that was not accounted for on a cash basis; and
    Included $6,225 of revenue that contained non-institutional charges (admissions testing
      fee).

Requirements for the 90/10 Rule Calculation

Section 102(b)(1)(F) of the HEA provides that a proprietary institution must have “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.” Pursuant to
34 C.F.R. § 600.5(a)(8), to be eligible to participate in the Title IV, HEA programs, a proprietary
Final Report
ED-OIG/A06H0016                                                                          Page 21 of 57

institution must have “no more than 90 percent of its revenue derived from title IV, HEA
program funds.”

The following formula for calculating the percentage for an institution’s latest complete fiscal
year is found at 34 C.F.R. § 600.5(d)(1):

          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. 


Pursuant to 34 C.F.R. § 600.5(e)(1)(iii) and (v), “[t]he institution may not include as title IV,
HEA program funds in the numerator nor as revenue generated by the institution in the
denominator . . . . (iii) The amount of institutional funds it used to match title IV, HEA program
funds . . . or (v) The amount charged for books, supplies, and equipment unless the institution
includes that amount as tuition, fees, or other institutional charges.”

The regulations at 34 C.F.R. § 600.5(d)(2) provide that “[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 . . .”
According to 34 C.F.R. § 600.5(e)(2)—

       [i]n determining the amount of title IV, HEA program funds received by the
       institution under the cash basis of accounting . . . . the institution must presume
       that any title IV, HEA program funds disbursed or delivered to or on behalf of a
       student will be used to pay the student's tuition, fees, or other institutional
       charges, regardless of whether the institution credits those funds to the student's
       account or pays those funds directly to the student, and therefore must include
       those funds in the numerator and denominator.

The regulations at 34 C.F.R. § 600.5(e)(4) state that “With regard to the denominator, revenue
generated by the institution from activities it conducts, that are necessary for its students’
education or training, includes only revenue from those activities that – (iii) Are required to be
performed by all students in a specific education program at the institution.” In CCC’s case, the
dental assisting students provided periodic dental hygiene instruction to the children in CCC’s
child care center located on campus. However, CCC included all of the child care center’s
revenue in its 90/10 calculation, not just the portion attributable to the dental assisting students’
work. CCC did not provide supporting documentation as to the amount of time the dental
assisting students worked in the child care center, and CCC’s catalog does not indicate that
providing the dental hygiene instruction is necessary to complete the program.
Final Report
ED-OIG/A06H0016                                                                                  Page 22 of 57

Inadequate Policies, Procedures, and Practices

Errors in CCC’s 90/10 Rule calculation occurred because CCC did not consistently code the
transactions within its accounting system, resulting in funds being accounted for in an incorrect
category. In addition, CCC officials stated they considered Clary Sage College revenues to be
correctly included in the 90/10 calculations as generated from eligible programs, regardless that
Clary Sage College was not approved for certification and was not a participating institution.
CCC officials stated that they included the day care revenue because the dental assisting students
worked with the children periodically about dental hygiene. CCC officials also relied on their
independent public accountant's advice that Clary Sage College revenues as well as the revenues
from the child care center were eligible to be included in the 90/10 calculations.

Improper Percentage of Revenue Reported to the Department

As a result of improperly calculating the percentage of revenue derived from Title IV, HEA
program sources, CCC reported inaccurate 90/10 Rule information in its 2006 financial
statements. CCC reported that it derived 86.12 percent of its revenue from Title IV, HEA
program sources for fiscal year 2006.7 While the misclassifications, such as the Clary Sage
services, child care center revenue, and the non-institutional charges in CCC’s 90/10 calculation
resulted in CCC understating its 90/10 calculation percentage, other errors we identified resulted
in CCC overstating its percentage. Specifically, of the 11 misclassification errors, 9 (82 percent)
mistakenly reduced student payments instead of reducing Title IV, HEA program funds. These
errors decreased student payments in the denominator, when the amount of Title IV, HEA
program funds in both the denominator and numerator should have been decreased. Considering
all the errors disclosed by our review, we calculated a higher percentage of revenue that CCC
derived from Title IV, HEA program sources for fiscal year 2006 (87.90 percent). Although we
did not examine every transaction, we do not believe that CCC exceeded the statutory threshold
to be eligible to participate in the Title IV, HEA programs for its fiscal year 2006.

Recommendations

We recommend that the COO for FSA require CCC to:

6.1 	   Recalculate its 90/10 Rule percentage for its 2004, 2005, 2006, and 2007 fiscal years,
        report the percentage to FSA, and provide FSA with the revised calculation and the detail
        behind the revised calculation.

6.2 	   Develop and implement policies and procedures that ensure it will calculate the
        percentage of revenue derived from the Title IV, HEA programs in compliance with the
        requirements set forth in 34 C.F.R. § 600.5.




7
 CCC reported that it derived 89.44 percent and 86.16 percent of its revenue from Title IV, HEA program sources
for the 2004 and 2005 fiscal years, respectively.
Final Report
ED-OIG/A06H0016                                                                       Page 23 of 57

CCC Comments

CCC maintains that it has sufficient policies and procedures for ensuring compliance with the
90/10 requirements set forth in 34 C.F.R. § 600.5, and provided the following specifics regarding
the 90/10 calculation:

   	 Misclassified transactions. The draft audit report contains no factual details supporting
      the conclusion that CCC misclassified cash transactions. CCC maintains sufficient
      internal controls to ensure that its payment transactions are properly coded and recorded
      based on their source. Finally, CCC has been provided with no support for the claim that
      it improperly coded transactions resulting in funds being accounted for in an incorrect
      category.
   	 Clary Sage. CCC properly included student cash payments occurring prior to the
      approval date of Clary Sage College’s (“Clary Sage”) Program Participation Agreement
      (“PPA”) because the applicable regulations approve such treatment. Specifically, the
      regulatory guidance in FSA’s Handbook allows Title IV aid to be disbursed retroactively
      for the payment period in which the PPA was approved. As a result, it is proper to
      include related cash payments received during the same payment period.
   	 Child care facility. CCC maintains cash revenue derived from its on-site childcare
      facility is properly included in its 90/10 calculations because the facility is used as clinic
      and training classrooms to provide necessary instruction to students. Furthermore, the
      childcare facility is used to provide educational classroom instruction in a number of
      programs, such as Early Childhood Education, Medical Assisting, and Dental Assisting.
   	 Cash Basis. CCC states that this assertion is simply inaccurate. CCC always calculates
      the percentage of revenue derived from the Title IV, HEA programs on a cash basis and
      the firm that audits CCC for its 90/10 calculation has certified its accuracy.
   	 Admission testing fee. CCC has never charged an admissions or testing fee. CCC
      collects a small cash payment during enrollment which is applied against the balance due
      in the enrollment contract. OIG made this finding because periodic vernacular references
      are made to an application fee but CCC’s student account ledgers clearly and accurately
      reflect the amounts as payments of institutional charges. CCC is taking action to
      eliminate continued inaccurate references to the payment as an application fee.

OIG Response

Following are our specific responses to CCC’s comments on misclassified transactions, Clary
Sage, child care facility, cash basis, and admission testing fee.

   	 Misclassified transactions. CCC’s system of internal control allowed transactions to be
      misclassified. Four $1,500 scholarships were classified as non-Title IV excess cash, a
      Pell grant was classified as student payment, and five return of Title IV aid checks were
      coded as non-Title IV excess cash.
   	 Clary Sage. CCC contends that revenue from Clary Sage was allowable because it was
      under an approved PPA for that year. However, CCC did not provide us with an
      approved PPA for Clary Sage for the year in question. The documentation provided to us
      during the audit showed that Clary Sage was not an approved participating institution
      during award year 2006-2007.
Final Report
ED-OIG/A06H0016                                                                  Page 24 of 57

  	 Childcare facility. CCC contends that revenue from its on-site childcare facility is
     properly included in its 90/10 calculation because the facility is used as clinic and
     training classrooms to provide necessary instruction to students. However, CCC did not
     provide support that the childcare facility was used to provide educational instruction to
     students in the Medical Assisting and Dental Assisting programs. In addition, Early
     Childhood Education was neither an approved program during award year 2006-2007 nor
     listed in CCC’s catalog as a program offered during award year 2006-2007.
  	 Cash basis. Two transactions within our sample were not cash basis transactions. Both
     transactions were tuition adjustments to the students’ accounts. No payments were
     involved, and we could not trace the transactions through the financial records CCC
     provided.
  	 Admission testing fee. Prospective students were provided a packet of information and
     items needed prior to registering as a student. Prospective students are required to pay a
     $15.00 application fee prior to enrollment. On the application is a note stating that the
     fee is “due prior to enrollment.” Fees charged prior to enrollment cannot be considered
     institutional charges that are necessary for the education or training of students who are
     enrolled in eligible programs.
Final Report
ED-OIG/A06H0016                                                                     Page 25 of 57


                  OBJECTIVES, SCOPE, and METHODOLOGY
	


The objectives of our audit were to determine if CCC complied with selected provisions of the
HEA and regulations governing (1) student eligibility, (2) recruitment of students and incentive
compensation, (3) the return of Title IV aid, (4) disbursements, and (5) the percentage of revenue
that may be derived from Title IV, HEA programs (90/10 Rule). Our audit covered award year
2006-2007.

To accomplish our objectives, we—

   	 Reviewed provisions in the HEA, regulations, and Departmental guidance applicable to
      our audit’s objectives;
   	 Reviewed CCC’s audited financial statements and Compliance Attestation Examination
      of the Title IV Student Financial Assistance Programs for the fiscal year ended
      December 31, 2006;
   	 Interviewed CCC officials;
   	 Obtained an understanding of CCC’s system of internal control including policies and
      procedures regarding the 90/10 Rule calculation, return of Title IV aid, enrollment,
      disbursements, and incentive compensation;
    Reviewed CCC’s bank statements for the period July 1, 2006, through June 30, 2007;
    Interviewed the independent public accountant regarding aspects of return of Title IV aid
      and CCC’s compliance with the 90/10 Rule;
    Analyzed the composition of the numerator and denominator for CCC’s 90/10 Rule
      calculation;
   	 Judgmentally selected, based on length of employment, two of seven admissions
      employees and reviewed their payroll records, and reviewed admission contest rules to
      test CCC’s compliance with the incentive compensation regulation; and
   	 Randomly selected 25 students from the universe of 824 Title IV, HEA program funds
      recipients and reviewed their files to determine if CCC complied with the eligibility and
      disbursement requirements.
   	 Analyzed approximately 1,300 pages of exhibits provided by CCC in its response to the
      draft audit report.

To test CCC’s compliance with the 90/10 Rule, we judgmentally selected a sample of 130 of
1,180 transactions from 10 revenue categories included in the 90/10 calculation. We selected 10
percent, or 25 transactions, and traced the transactions to student account records, original bank
statements, deposit slips, Sallie Mae loan journals, Pell logs, and credit card receipts and
deposits. We generally selected the largest dollar amounts and at least three entries per revenue
category.

To evaluate the school’s compliance with the return of Title IV aid requirements, we randomly
selected 33 students from the universe of 321 students who received Title IV, HEA program
funds and withdrew, dropped, or were terminated from the school during the period July 1, 2006,
through June 30, 2007. The 33 students included 3 students with post withdrawal disbursements,
Final Report
ED-OIG/A06H0016                                                                                     Page 26 of 57

5 students for whom CCC calculated that no return of Title IV aid was due, and 25 students for
whom calculated returns were due. Title IV, HEA program funds totaling about $149,719 were
involved in the 33 students’ calculations.

We also relied, in part, on computerized data (student lists and accounting records)8 provided to
us by CCC officials and data we obtained from the Department’s National Student Loan Data
System (NSLDS). We used CCC’s student roster lists for selecting our return of Title IV aid
sample and the NSLDS data for selecting our student eligibility and disbursement sample. We
verified the completeness, accuracy, and authenticity of the data by comparing the computerized
data with source records and source records to computerized data. We tested the student lists for
accuracy and completeness by comparing a sample of student information to selected source
records. We tested the accounting records for accuracy and completeness by judgmentally
selecting 10 percent or 25 of the larger transactions (which ever was lower) for each revenue
category and tracing them to deposit slips, student records, and original documentation. In
addition, we verified the Title IV, HEA program amounts in CCC’s accounting records to the
NSLDS data. Based on these tests, we concluded that CCC’s student lists and accounting
records and the NSLDS information were sufficiently reliable for the purpose of our audit.

We conducted our fieldwork at CCC’s campus in Tulsa, Oklahoma, and our offices from July
2007 through June 2008. We held an exit conference with CCC officials on January 9, 2009.

Our audit was performed in accordance with generally accepted government auditing standards
appropriate to the scope of the review described above.




8
 The accounting records obtained included general ledger transactions related to student accounts, return of Title IV
aid, institutional refunds, and the 90/10 Rule calculation.
Final Report 

ED-OIG/A06H0016                                Page 27 of 57 





  ENCLOSURE: CCC’s Comments on the Draft Audit Report 

Final Report
ED-OIG/A06H0016              Page 28 of 57


COMMUNITY CARE COLLEGE’S RESPONSE 

         TO THE OFFICE OF 

      INSPECTOR GENERAL’S 

          AUDIT REPORT 

       ACN ED-OIG A06H0016 

Final Report
ED-OIG/A06H0016                                                              Page 29 of 57

                                  TABLE OF CONTENTS

                                                                          Page

Part I:        Preliminary Statement                                         6

Part II:       Background                                                    7

Part III: 	    CCC Does Not Offer Self-Paced Programs                        9

Part IV: 	     CCC’s Policies, Regulatory Interpretations, and              13
               Methodologies Have Been Extensively Reviewed and
               Approved by its Regulators

Part V: 	      Significant Errors Exist in Finding 1 of the Draft Audit     15

Part VI: 	     Finding 2 Demonstrates Confusion in the Draft Audit          20
               About the Regulations Relating to Student Withdrawals

Part VII: 	    Finding 3 Does Not Justify a Letter of Credit                20

Part VIII: 	   Finding 4’s Focus on LDA is Contrary to Regulatory           22
               Guidance

Part IX: 	     Finding 5 - CCC’S Academic Year Satisfies the                24
               Regulations and has been Reviewed and Approved
               By The Department

Part X: 	      CCC’S 90/10 Calculations and its Related Policies and        26
               Procedures are Sufficient to Satisfy 34 C.F.R. §600.5

Part XI: 	     Conclusion                                                   30
Final Report
ED-OIG/A06H0016                                                          Page 30 of 57


                         Community Care College (CCC)
                               List of Exhibits

Exhibit 1         OIG Draft Audit Report, April 9, 2009

Exhibit 1.1       Dear Colleague Letter GEN-04-03 Revised (November 2004)

Exhibit 2         CCC Catalog 2006-2007 Award Year

Exhibit 2.1       Student Orientation Manual

Exhibit 2.2       Sample Student Schedule

Exhibit 2.3       Unofficial Withdrawal Policy

Exhibit 3         CCC Enrollment Agreement - 2006-2007 Award Year

Exhibit 4         CCC 90-10 Calculation with Transaction Detail (2006)

Exhibit 5         Disbursement Calculations for Students 1, 4, and 29

Exhibit 6         ABHES Accreditation Manual

Exhibit 7.0       May 2, 2005 Transfer to HCM2

Exhibit 7.1       Approval of Reimbursement Package - July 8, 2005

Exhibit 7.2       Approval of Reimbursement Package - August 15, 2005

Exhibit 7.3       Approval of Reimbursement Package - September 29, 2005

Exhibit 7.3a      Revised Instructions for Submission Requirements on HCM2,
                  October 25, 2005

Exhibit 7.4       Approval of Reimbursement Package - November 3, 2005

Exhibit 7.5       Approval of Reimbursement Package-December 14, 2005

Exhibit 7.6       Approval of Reimbursement Package - January 20, 2006

Exhibit 7.7       Approval of Reimbursement Package - February 16, 2006

Exhibit 7.8       Approval of Reimbursement Package – April 6, 2006

Exhibit 7.9       Approval of Reimbursement Package - May 2, 2006

Exhibit 7.10      Approval of Reimbursement Package - June 8, 2006
Final Report
ED-OIG/A06H0016                                                           Page 31 of 57

Exhibit 7.11      Approval of Reimbursement Package - July 14, 2006

Exhibit 7.12      Approval of Reimbursement Package - August 18, 2006

Exhibit 7.13      Approval of Reimbursement Package - September 28, 2006

Exhibit 7.14      Approval of Reimbursement Package - October 23, 2006

Exhibit 7.15      Approval of Reimbursement Package-November 30, 2006

Exhibit 7.16      Approval of Reimbursement Package-December 28, 2006

Exhibit 7.17      Approval of Reimbursement Package - January 31, 2007

Exhibit 7.18      Approval of Reimbursement Package - March 13, 2007

Exhibit 7.19      Approval of Reimbursement Package - April 6, 2007

Exhibit 7.20      Removal from HCM2 dated April 19, 2007

Exhibit 8.1       Financial Statement for Year Ended December 31, 2008

Exhibit 8.1.a     Compliance Audit for Year Ended December 31, 2008

Exhibit 8.2       Financial Statement for Year Ended December 31, 2007

Exhibit 8.2a      Compliance Audit for Year Ended December 31, 2007

Exhibit 8.3       Financial Statement for Year Ended December 31, 2006

Exhibit 8.3a      Compliance Audit for Year Ended December 31, 2006

Exhibit 8.4       Financial Statement for Year Ended December 31, 2005

Exhibit 8.4a      Compliance Audit for Year Ended December 31, 2005

Exhibit 9         Provisional Certification Letter - September 26, 2008

Exhibit 10                          Pell Return checks – April 27, 2009

Exhibit 11        Return Spreadsheet Analysis and Related Checks

Exhibit 12        List of Students by Draft Audit Finding

Exhibit 13        Student R2T4 Documentation (Redacted to eliminate personal
                  information)
Final Report
ED-OIG/A06H0016                                                          Page 32 of 57

Exhibit 14        Electronic mail -             Atlanta Student Aid, Inc., to
                          , U.S. Department of Education

Exhibit 15        Finding 4 Analysis

Exhibit 16        Final Program Determination for Period July 1, 2001 – June 30,
                  2003 (August 18, 2006)

Exhibit 17        Final Audit Determination for Period January 1, 2005 – December
                  31, 2005 (August 31, 2006)

Exhibit 18        Program Review Report for Award Years 2001/2002, 2002/2003,
                  and 2003/2004 (September 2, 2005)

Exhibit 19        Unannounced Program Review Report (September 11, 2006)

Exhibit 20        25% Letter of Credit Demand (September 26, 2006)

Exhibit 21        Declaration -                       C.P.A.

Exhibit 22        Declaration -

Exhibit 23        Resume –

Exhibit 24        Evidence of Professional Development and On-going Training of
                  Financial Aid Staff
Final Report
ED-OIG/A06H0016                                                                                Page 33 of 57


                             COMMUNITY CARE COLLEGE’S 

                         RESPONSE TO THE OFFICE OF INSPECTOR 

                            GENERAL’S DRAFT AUDIT REPORT
	

                                              I.
	
                                    PRELIMINARY STATEMENT
	

        The Office of Inspector General (“OIG”) issued a draft audit report to Community
Care College (“CCC”, “School”, or “Institution”), Audit Control Number ED-
OIG/A06H0016 (“Draft Audit”, Exhibit 1) on April 9, 2009. The Draft Audit covers the
2006-2007 Award Year (July 1, 2006 through June 30, 2007) (“Award Year”). In
conducting the Draft Audit, OIG evaluated whether CCC satisfied Title IV, HEA
regulations relating to student eligibility, student recruitment and incentive
compensation, R2T4, disbursements, and compliance with 90/10. See, Exhibit 1, Draft
Audit at page 1 of 18.
        The Draft Audit contains six (6) findings.9 Importantly, the Draft Audit makes no
findings relating to perceived irregularities in student eligibility, recruitment of students,
or incentive compensation. Furthermore, five of the six findings are at least partially
dictated by the Draft Audit’s inaccurate conclusion that CCC offers self-paced programs.
That erroneous conclusion and the Draft Audit’s apparent confusion as to the correct
date of determination for making returns have significant implications to most of the
findings in the Draft Audit. In addition to those inaccuracies, additional reasons resolve
the first five findings in favor of CCC, as well.
        The final finding (Finding 6) relates to alleged inaccuracies in the School’s 90/10
calculation for the Award Year including claims that the School misclassified revenues,
included revenues improperly, failed to limit the calculation to cash-based revenues,
and included revenues containing non-institutional charges. CCC successfully refutes
the allegations in Finding 6 as presented below.




9
 It may prove helpful to refer to Exhibit 12 since it identifies the specific students involved in each of the
Findings (1 through 5). However, even with student identification, the Draft Audit lacks specific support
for the findings such that it remains difficult to evaluate the findings for purposes of this response.
Final Report
ED-OIG/A06H0016                                                                Page 34 of 57

                                         II.
	
                                     BACKGROUND
	

       CCC is a proprietary institution of higher education with a main location in Tulsa,
Oklahoma. The School was formed in 1995 and provides numerous diploma and
Associate of Science degree opportunities in business administration, health service
administration, medical assistant, early childhood education, dental assistant, fitness
and health, massage therapy, medical billing and coding, pharmacy technology, surgical
technology, and veterinary assistant. Exhibits 2 & 3 and Exhibit 21, ¶¶ 4 and 5.
       The Institution expanded in 2007 to include a second non-main campus (Clary
Sage College) (“Clary Sage”) also located in Tulsa Oklahoma offering diploma and an
Associate of Occupational Science degree in various cosmetology-related industries.
Clary Sage’s programs were approved for Title IV aid in July 2007. In March 2009, a
third campus (Oklahoma Technical College) (“OTC”) was opened in Tulsa, Oklahoma,
offering diploma and Associate of Applied Science degrees in automotive technology,
light diesel, and welding. OTC’s programs have not been approved for Title IV as of this
date. There are presently about 900 students enrolled in programs at the three
campuses and about 160 people employed as faculty and staff. Exhibit 6, ¶ 5 and
Exhibit 21, ¶ 5.
       The Draft Audit follows a very unusual procedural history. The audit was issued
almost 19 months after OIG initiated its audit and some 3 months after OIG conducted
its exit interview. OIG’s audit commenced only three months after CCC was removed
from Heightened Cash Monitoring, Level 2 (“HCM2”) in April 2007. Exhibit 7.20. CCC
was placed on HCM2 in May 2005. Exhibits 7.20. Since the findings in the Draft Audit
were delayed so long, it references a timeframe no longer relevant. CCC resolved most
deficiencies occurring in the time frame of the Draft Audit during the HCM2
reimbursement process. CCC has been off HCM2 for over two years at this point. The
Institution is and has been complying with Title IV regulations as reflected in its
favorable audits for 2006, 2007, and 2008. Exhibits 8.1, 8.1a, 8.2, 8.2a, 8.3, and 8.3a.
       It is significant to the context of the Draft Audit that CCC was subjected to
extensive regulatory review prior to the Draft Audit. During the four years prior to the
time OIG commenced its audit in July 2007, CCC received numerous regulatory
reviews. CCC had its first ever program review by the U.S. Department of Education
Final Report
ED-OIG/A06H0016                                                               Page 35 of 57

(“ED” or “Department”) in August 2004. Exhibit 18. That program review covered
award years 2001/2002, 2002/2003, and 2003/2004. The School also changed Title IV
audit firms in 2005 after receiving guidance from the Department identifying firms with
ample Title IV experience. That firm conducted an audit of 2005 resulting in numerous
findings. Exhibit 8.4a. In that audit, the audit firm recommended a 100% file review of
the School’s 2005 R2T4 calculations. The School posted an irrevocable letter of credit
in the amount of $231,000 (October 2006) due to the results of the audit performed by
its auditors in 2005. Exhibits 8.1a, 8.2a, 8.3a, and 20. The School also returned
approximately $2,050 as reflected in the Department’s August 31, 2006, Final Audit
Determination Letter following the audit of its R2T4 calculations. See, Exhibit 17.
       CCC also endured an unannounced program review in July 2006, relating to the
2003/2004, 2004/2005, and 2005/2006 award years. That program review resulted in a
mere $755 adjustment for those three award years. Exhibit 18. In August 2006, CCC
paid approximately $51,000 to resolve the Department’s Final Program Determination
from the August 2004 program review. See, Exhibit 16.
       In order to resolve the findings identified in the program reviews and audits of
2004 and 2005, CCC hired a CPA as its Chief Financial Officer (“CFO”) in mid-2006.
The CFO has over thirty years of management experience. Around that time, the
School also hired a financial aid specialist having significant Title IV experience. That
person has progressed to become the Director of Financial Aid and now has about 10
years of Title IV experience. Exhibits 21 and 22. The benefits of that experienced
management team are objectively reflected in the results of its subsequent annual
compliance audits. The School’s Title IV accounting firm issued a zero-finding audit
report in 2006 and its 2007 and 2008 audits contained only minimal findings. Exhibits
8.1a, 8.2a, and 8.3a. Furthermore, the School had about 19 reimbursement
submissions scrutinized and approved between July 2005 and April 2007. See, Exhibits
7.1 through 7.19. CCC was released from HCM2 in April 2007. See, Exhibit 7.20.
       For whatever reason, it is unlikely that any school received more regulatory
scrutiny during that four-year period. Nonetheless, OIG asserts findings entirely
inconsistent with the regulatory determinations by the Department and other industry
experts over the relevant time frame and which, if accurate, would have been detected
long before OIG conducted its audit.
Final Report
ED-OIG/A06H0016                                                                               Page 36 of 57

        Fundamental errors in OIG’s interpretation of CCC’s school operations and
erroneous interpretations of the Department’s regulations result in inaccurate
conclusions in the Draft Audit unsupported by facts or regulation. For the reasons
stated below, CCC requests that OIG withdraw its findings and issue a final audit
determination without findings.
                                       III.
	
                    CCC DOES NOT OFFER SELF-PACED PROGRAMS
	

        A number of erroneous conclusions are evident in the Draft Audit. No single
error has a greater ripple effect in the Draft Audit than the assertion that CCC offers
self-paced programs. The Draft Audit’s inaccurate determination that CCC provides
instruction in self-paced programs affects the accuracy of most of the findings in the
Draft Audit. Specifically, among other errors, the inaccurate determination that CCC
provides self-paced programs results in additional erroneous conclusions that CCC: 1)
incorrectly calculated Return to Title IV (“R2T4”) (Finding 1); 2) made untimely
determinations of student withdrawals (Finding 2); 3) returned Title IV funds in an
untimely manner (Finding 3); 4) improperly disbursed funds to students after they
withdrew (Finding 4); and 5) incorrectly pro-rated Pell and FFEL (Finding 5).
        The characteristics of a self-paced program are described in the Federal Student
Aid Handbook. See, Volume 4, Processing Aid and Managing Federal Student Aid
Funds, 2008-2009, at Chapter 2, page 4-45.10 Specifically, self-paced programs are
defined as:
        A self-paced program is an educational program without terms that
        allows a student – (1) to complete courses without a defined
        schedule for completing the courses; or (2) at the student’s
        discretion, to begin courses within a program either at any time or
        on specific dates set by the institution for the beginning of courses
        without a defined schedule for completing the program. (Emphasis
        added).

Exhibits 2 and 3 (CCC’s 2006-2007 Catalog and 2006-2007 Enrollment Agreement)
clearly refute OIG’s assertion that CCC offers self-paced programs. Each exhibit
10
  Apparently, the only definition for a self-paced program in the regulations appears at 34 C.F.R.
§691.75(e). That definition first appears in the regulations as of July 1, 2007. It is also noted that said
definition is presented as applying to the associated section of the regulations relating to the
administration of grant payments, specifically, Academic Competitiveness Grants (ACG) and so-called
National Smart Grants in Part 691 of the Regulation.
Final Report
ED-OIG/A06H0016                                                                Page 37 of 57

reflects defined weekly periods for completing courses and programs. For example, the
Dental Assistant program is shown in Exhibit 3 as having 734 Clock Hours over a 32-
week period resulting in a total of 30 credit hours. This program is taught through a
series of sequential modular-like course in which a student only receives a final grade at
the end of each scheduled course.
       In contrast, self-paced programs are characterized by programs of study in which
there is no scheduled time frame for completing courses in the program. An example
includes a program similar to that described above but without modules. Rather,
students would merely take and complete lessons in a course at their own pace. In
other words, the defining characteristic of a self-paced program is that students
advance at varying rates through a program based on their ability to satisfy course
requirements. That is not the case at CCC.
       In a self-paced structure, a student may master the information in Course
Number 1 on Tuesday, pass a related test, and proceed to Course Number 2. The
student could complete Course Number 2 by Thursday of that same week and start
Course Number 3 on Friday the same week. Another student may take the whole week
to complete Course Number 1 despite commencing the program on the same date as
the first student. As a result, it is characteristic of self-paced programs that one student
may finish a 30-semester credit, 30-week program in 20 weeks while another student
takes the full projected 30 weeks to complete the program even though both students
are attending full time. Such programs are rare and normally occur in computer-based
programs in which all lessons, courses, and exams are loaded on a computer so the
student can go as fast or as slow as they wish.
       The programs at CCC are easily distinguished from self-paced programs. At
CCC, students are required to proceed through a program according to the schedules
identified in their enrollment agreement and school catalog. Exhibits 2, 2.1, 2.2, and 3.
Exhibit 2.2 is a sample student schedule clearly showing modules taken by the student
as well as future modules to be taken. In each instance, the student’s schedule reflects
finite start and end dates for each modular course. Of course, students can possibly
proceed through programs at varying rates if there are interruptions in their ability to
attend courses, by failing a course, etc. However, CCC is undoubtedly a non-term
Final Report
ED-OIG/A06H0016                                                               Page 38 of 57

credit-based school providing education through a modular course structure as opposed
to a school offering self-paced programs.
       The Draft Audit confuses the fundamental elements of a self-paced program in
rendering Findings 1 through 5 because it focused on interruptions in some student’s
studies. The Draft Audit seems to ignore the fact that all of the students in its sample
withdrew from CCC at some point for various reasons. However, the vast majority of
CCC’s students proceed without such interruptions according to the schedule shown in
their enrollment agreements, the school catalog, and individual student schedules such
as Exhibit 2.2.
       The characteristics of a non-term credit institution such as CCC can be explained
in an example in which a program is offered over 30 weeks for which students earn 30
semester credits. Classes are taught in one-subject modules course each week. Some
classes may have varying lengths, but the constant element is that students only
receive a grade and credit for each course module at the end of the prescribed period.
The structured module course system distinguishes these programs from self-paced
programs. The fact that students start on the same date in the same program but
ultimately conclude the program on different dates is not indicative of a self-paced
program but merely evidence that some student’s education is interrupted by events
such as failing a course or having to take a leave of absence. It appears that OIG
concluded, incorrectly, that such variance was evidence of self-paced programs.
       As with term-based programs, students failing a course, receiving an incomplete
grade, dropping a course, taking a leave of absence, or otherwise interrupting
scheduled course will most likely have a different end date from students in the same
program that complete all course work without extenuating circumstances that lead to
interruptions. The same is true for students who transfer credits from another institution
or return after a withdrawal, drop, leave of absence, or administrative leave. In each
instance, students are likely to have a different schedule and end date from students
who proceeded without interruption. Such interruptions do not make a program self-
paced. The purported anomalies discussed in the Draft Audit certainly do not support
OIG’s conclusion that CCC offers self-paced programs. More accurately, CCC is a
normal credit-hour, non-term school. It is evident from the erroneous conclusion that
CCC provides self-paced programs that the reviewers are accustomed to evaluating
Final Report
ED-OIG/A06H0016                                                                Page 39 of 57

term-based institutions as opposed to schools like CCC that are non-term credit hours
institutions.
       It is clear that CCC’s programs do not satisfy the definition of self-paced
programs articulated in the Federal Student Aid Handbook and cited above. The
following highlights why CCC does not satisfy the Federal Handbook’s definition of a
“self paced” program:
           a) At enrollment, each student at CCC signs an enrollment agreement
              identifying a definite program start and end date. The length of the
              program is based on the approvals by both the state licensing body and
              national accrediting agency. In addition, students are provided with a
              schedule, generated by the campus management software, identifying the
              sequential courses based on the program course requirements.

           b) Each individual course within a program has a specific start and end date
              with specific hours of required attendance. Students that do not attend a
              scheduled class are marked absent. If a student is not able to
              successfully complete a course by the course end date due to poor
              attendance or performance, they receive the grade earned and must pay
              to retake any failed course. The related grade also affects the student’s
              qualitative and quantitative Satisfactory Academic Progress (“SAP”)
              components.

           c) As in traditional term-based programs, students sometimes fail to start a
              course causing the course to be rescheduled for a later date. If, due to
              course rotation, that course is not immediately available, the student may
              have a break in schedule. That does not make the student self-paced
              according to the Federal Handbook definition. There is no regulatory
              prohibition against this type of break.

           d) Students completing courses as scheduled at enrollment will complete the
              program with the same cohort students they started with just as they
              would in a term-based modular structure.

       It is also significant that CCC’s accrediting agency does not consider CCC a self-
paced institution. CCC is accredited by the Accrediting Bureau of Health Education
Schools (“ABHES”). ABHES identifies a category of programs as “continuous term” for
purposes of calculating credit-hour values in non-term programs. Exhibit 6. The OIG
report also cites the institution’s catalog reference to “continuous term” in support of
their argument that CCC programs are self-paced. The term itself does not differentiate
between self-paced and modular programs or any other type of non-term program. It
certainly is not used by ABHES, nor does it imply that non-term means self-paced. The
Final Report
ED-OIG/A06H0016                                                                 Page 40 of 57

term is nothing more than a category used by ABHES for calculating credit hour values
in non-term programs.
                                IV.
	
 CCC’s POLICIES, REGULATORY INTERPRETATIONS, AND METHODOLOGIES 

 HAVE BEEN EXTENSIVELY REVIEWED AND APPROVED BY ITS REGULATORS
	

       When evaluating the regulatory assertions in the Draft Audit, it is helpful to recall
that CCC was subjected to extensive scrutiny by various regulators, such as the
Department, and Title IV experts for the time period before, during, and after the
2006/2007 Award Year that is the subject of the Draft Audit. That scrutiny involved all
aspects of Title IV compliance including Title IV policies, regulatory interpretations, and
methods of implementing Title IV-related policies. As a result, CCC maintains that it is
more likely that the conclusions in the Draft Audit are inaccurate since they are
inconsistent with the review and approvals issued by its primary regulators and Title IV
professionals who have significantly greater familiarity with CCC and similarly situated
schools.
       The Department’s approval of each reimbursement submission by CCC after its
HCM2 review process over a 20-month period from May 2005 through April 2007 (which
covers the Award Year audited by OIG) is significant. Such evidence contradicts
assertions in the Draft Audit that CCC’s Title IV policy interpretations and applications
are defective. Those recurring approvals in the context of the heightened scrutiny
imposed by HCM2 refute many of the concerns in the Draft Audit about the efficacy of
CCC’s student withdrawal policy, for example. To the extent CCC applied the wrong
withdrawal policy or improperly applied its withdrawal policy during the Award Year, the
Department certainly would have detected those errors since student withdrawals result
in returns and other adjustments relevant to the HCM2 reimbursement process. CCC
made nine (9) HCM2 reimbursement requests during the Award Year evaluated by OIG.
See, Exhibits 7.11 through 7.19. It is beyond unlikely that the Department would not
have detected student withdrawal errors such as those alleged in the Draft Audit under
such detailed reviews over such an extended period of time.
       Furthermore, CCC’s policies, procedures, and methodologies were reviewed and
approved by the Department as part of the Program Participation Agreement
Final Report
ED-OIG/A06H0016                                                                            Page 41 of 57

recertification process in 2008.11 CCC received its recertification by letter dated
September 26, 2008. Exhibit 9. For ease of reference, CCC attached electronic mail
exchanges between the Department and representatives of CCC to Exhibit 9 by which
CCC provided its SAP, unofficial withdrawal, R2T4, and admissions policies, among
others, relevant to OIG’s findings in the Draft Audit. Since the Department develops
and routinely interprets and applies Title IV regulations, it is reasonable to conclude that
its numerous approvals in the HCM2 reimbursement process and its evaluations in the
recertification process provide compelling objective evidence that CCC’s policies and its
application of those policies were compliant during the Award Year audited by OIG.
        CCC also maintained an appropriate system of internal controls during the Award
Year to ensure compliance with Title IV regulations. To that end, CCC ensures that its
staff completes R2T4 calculations properly by requiring adequate training in Title IV
compliance. Furthermore, CCC received counsel and training from an experienced Title
IV accounting and auditing firm considered experts in Title IV administration. Exhibit 21,
¶6. Those experts issued financial and compliance audit reports for the years ending
December 31 for 2006, 2007, and 2008, the results of which revealed no significant
deficiencies and certainly nothing like those in the Draft Audit. Exhibits 8.1, 8.2, and
8.3.
        Management also routinely monitors staff performance to ensure compliance
with Title IV, HEA program regulations and guidance provided by ED. The alleged
errors cited in the Draft Audit result from differences between the Draft Audit’s
regulatory interpretation and those by the Department and other subject matter experts
but they certainly do not result from CCC’s failure to properly administer Title IV. CCC’s
SFA audit results belie the conclusions reached in the Draft Audit. Exhibit 21, ¶6.
        In addition, the Institution invests significant resources in compliance. Those
investments including tripling the size of its financial aid staff, hired a CPA as its Chief

11
   CCC submitted an application to recertify its Program Participation Agreement (PPA) on February 19,
2008. In a telephone discussion with                     U.S. Department of Education, on April 14, 2008,
            requested CCC’s written policies and procedures regarding withdrawals, R2T4, and
admissions in the context of her evaluation of CCC’s application for recertification. Those policies were
transmitted to her via electronic mail that same day. On May 27, 2008,                sent an electronic
mail request for additional information. Exhibit 9, p. 9-4. That additional information was transmitted to
            on May 29, 2008. Exhibit 9, pp. 9-3 and 9-9 through 9-17. The PPA verifying recertification
was issued by the Department on September 26, 2008. Exhibit 9-1 and Exhibit 22, ¶4.
Final Report
ED-OIG/A06H0016                                                                           Page 42 of 57

Financial Officer, hiring a new audit firm recommended by ED, investing in continuing
education for its employees, and acquiring updated software and hardware technology
to maintain compliance. See, Exhibit 24. Of course, CCC also relies heavily on
guidance it receives from ED with respect to confirming its Title IV regulatory
interpretation and application and, when appropriate, modifies its policies and
procedures to be consistent with ED’s guidelines. Exhibit 21, ¶ 7. The Institution
should not be penalized now for interpretation differences between the OIG and ED or
the fact that the OIG has taken almost two years to issue its report. As detailed above
in Section II, below, CCC has received extensive oversight prior to and during the Draft
Audit period. That oversight by ED and other industry experts was performed by parties
far more familiar with CCC’s operations than OIG. Furthermore, the objective evidence
from the School’s compliance audits and the results of the HCM2 submissions verify
that CCC is a complying institution.
                                     V.
	
          SIGNIFICANT ERRORS EXIST IN FINDING 1 OF THE DRAFT AUDIT
	

        Finding 1 in the Draft Audit asserts six (6) deficiencies in calculations related to
returning Title IV funds. OIG asserts that the most significant error it found in this
regard was an alleged failure to use the correct payment period end dates. It also
alleges that the School: a) incorrectly categorized Title IV funds as could have been
disbursed or disbursed; b) incorrectly accounted for non-scheduled periods; c)
incorrectly determined the last date of attendance (“LDA”); d) incorrectly calculated the
days in institutional breaks; and 5) incorrectly calculated institutional charges. The Draft
Audit’s conclusion in this finding that CCC offers self-paced programs and its reliance
on inapposite guidance from Dear Colleague Letter GEN-04-03, Revised (November
2004) (“DCL GEN-04-03”) are unjustified and inaccurate as applied to CCC. Exhibit
1.1.
        In and around the time the referenced Dear Colleague Letter was issued,
        contacted                      in the Policy Division of the Department via electronic
mail.12 See, Exhibit 14. In that electronic mail,                     confirmed a preceding


12
               is an experienced Title IV consultant and former Training Officer for the U.S. Department
of Education.               assisted CCC in evaluating and responding to the Draft Audit given its focus
on Title IV-related issues.               resumé appears as Exhibit 23 to this response.
Final Report
ED-OIG/A06H0016                                                                 Page 43 of 57

telephone discussion with                 and verified that, the example contained in DCL
GEN-04-03 and quoted on page 6 of the Draft Audit, solely and specifically relates to
self-paced programs. As a result of its reliance on the conclusion that CCC provides
self-paced programs, as evidenced by its reference to the quoted portion of DCL GEN-
04-03, those findings in the Draft Audit relying upon that conclusion fail to the extent
CCC does not make such program offerings. That error eliminates any credibility in
OIG’s most significant assertion in Finding 1 and undermines its claim that the School
failed to use the correct payment period end dates.

       The balance of Finding 1 contains additional inaccurate conclusions about the
structure of CCC’s programs and related regulatory requirements as detailed in the
following:

       a)     The Draft Audit alleges that the School incorrectly used the “Could Have
Been Disbursed” aid classification in 11 of the 33 students contained in the sample with
respect to their R2T4 calculations. CCC concedes that it incorrectly categorized aid
with respect to 4 of the 33 sample students (12%). However, the return calculation for
those four students did not involve any federal student loan disbursements in the “aid
that could have been disbursed” category. Furthermore, the error was corrected after
an April 2007 training conference in which CCC became aware it could include student
loans in the return calculations for those who had not attended 30 days. Exhibit 21, ¶ 8.
It is also significant that these errors actually resulted in returns of aid by CCC
exceeding that required by regulation.

       CCC contests the finding with respect to the remaining students alleged to have
been improperly categorized. CCC relies upon the same analysis it provides with
respect to Finding 2 to refute this portion of Finding 1. Specifically, the Draft Audit
erroneously asserts that the School should have made earlier determinations to drop
the students and that an earlier determination would have affected the relative aid
classifications for those students. The Draft Audit relies entirely on DCL GEN-04-03 for
its conclusions in this regard. However, DCL GEN-04-03 relates to determinations
relating to R2T4 calculations but has no relevance to the issue of determinations of the
particular date students should be dropped by the institution. Thus, the Draft Audit’s
references to CCC’s withdrawal policies are inapposite to the issue of R2T4 and the
Final Report
ED-OIG/A06H0016                                                                Page 44 of 57

finding as to these seven students is incorrect. This provides another example of OIG’s
apparent lack of familiarity of the subject regulations and their proper application.

       b)     This portion of Finding 1 alleges that the Institution incorrectly accounted
for non-scheduled periods in 10 of the 33 sample R2T4 calculations. The Draft Audit’s
position is that CCC improperly handled non-scheduled periods as institutional breaks
instead of counting those periods as absences in the return calculation. Non-scheduled
periods occur when extenuating circumstances interrupt students’ ability to attend one
or more of their originally scheduled course. In those instances, students request
course rescheduling for a future date. There is no regulatory requirement that a student
must be counted absent during periods they were not scheduled to attend in such
instances. If students fail to attend a scheduled course, they are counted absent.
However, they are not absent merely because they are not on campus during an
arranged break while waiting for a future course. The students’ schedules are revised
in such instances to best match the remaining program requirements including taking
into account course rotation and availability. Those factors impact the length of
resulting schedule breaks. Of course, such rescheduling is also determined in the
context of the School’s Unofficial Withdrawal policy. Exhibit 9 at p.9-13. The Draft
Audit’s request for a different return calculation would only be justified if CCC offered
self-paced programs but it does not.

       c)     Finding 1 also states that CCC incorrectly determined the LDA in 10 of the
33 sample R2T4 calculations. The ten students had periods of non-attendance due to a
break in schedule between courses. Though not well articulated, CCC understands that
the Draft Audit contends that the ten students should have been withdrawn and a return
calculation processed. Apparently, the Draft Audit objects to students being allowed to
subsequently resume their studies after a break in schedule even if the students make
specific commitments to return to school. In most instances, students honor their
commitment. Exhibit 21, ¶9. Furthermore, in all instances, CCC satisfied the regulatory
requirements by using the actual LDA documented in its record maintenance system
when performing any related R2T4 calculations.

       d)     CCC concedes it incorrectly calculated the number of institutional break
days in 4 of the 33 sample calculations (12%). That oversight was discussed with OIG
Final Report
ED-OIG/A06H0016                                                                   Page 45 of 57

during its July audit. CCC made immediate changes implementing corrective action.
Prior to that change, CCC had not properly accounted for the days leading up to school
breaks. Specifically, CCC was including Fridays, Saturdays, and Sundays occurring
before breaks in the day count even though many classes ended on Thursdays.
Fortunately, the error was infrequent because it only occurred in calculations involving
schedule breaks during the withdrawal period.

      e)     The final portion of Finding 1 asserts CCC miscalculates institutional
charges for 21 sample students. In fact, CCC accurately pro-rates the charges
consistent with the guidance provided by the Department according to federal
guidelines. Specifically, CCC relies on the Department’s guidance appearing in the
2006-2007 Federal Student Aid Handbook relating to institutional charges in refuting
this portion of Finding 1. Volume 5 of that Handbook for 2006/2007 at Chapter 2, at
pages 5-25-26, states in pertinent part:
      If a school with a non-term program chooses to base the Return 

      calculation on a payment period, but the school charges for a 

      period longer than the payment period (most likely the period of 

      enrollment), there may not be a specific amount that reflects the 

      actual institutional charges incurred by the student for the payment 

      period. In this situation, the student's institutional charges for the 

      payment period are the prorated amount of institutional charges for 

      the longer period. (Emphasis added). 


      Principle 1: Most costs charged by the school are institutional
      charges
      The most important principle to keep in mind is that all tuition, fees, 

      room and board, and other educationally related charges a school 

      assesses a student are institutional charges, unless demonstrated 

      otherwise. If you want to exclude specific charges or costs from a 

      calculation, you must document that the charges are not 

      institutional charges. 


Exhibit 9 at p. 9-9, provides the following relevant information about CCC policy.

      Institutional Policy: Return to Title IV procedure 

      Completing R2T4 Calculation Form (Some data entered will 

      automatically fill in subsequent sections of the calculation form): 


             1. 	   Enter general student information (program, SS#, Name,
                    Tuition Costs, etc.)
Final Report
ED-OIG/A06H0016                                                                         Page 46 of 57

                       	 Tuition costs are divided by the number of payment
                          periods for which the student is charged on the
                          enrollment agreement. Examples are:
                          Medical Assistant: the enrollment agreement indicates
                          one academic year of charges (the academic year
                          consists of 2 payment periods). Therefore, we divide the
                          charges by 2 payment periods.
                          Associate of Dental Assisting: the enrollment agreement
                          indicates 2 academic years of tuition charges. Therefore,
                          we divide the charges by 4 payment periods.
        Apparently, the Draft Audit maintains that pro-rated charges should be based
upon each academic year of tuition, fees, and books as reflected on the enrollment
agreement. The Draft Audit further maintains that the resulting amount should be
divided into two payment periods since CCC utilizes two payment periods in its related
policy. However, the Draft Audit fails to recognize that CCC posts all tuition, fees, and
book charges to student accounts at the time of enrollment without regard of the
number of payment periods in the student’s program.
        It is of further significance to the Draft Audit’s finding in this regard that CCC
recently completed its 2008 recertification process during which its policies and
procedures were scrutinized and approved by the Department. In that process, the
Department specifically indicated that CCC’s policies and procedures were being
reviewed to determine regulatory compliance. Since many of the same policies and
procedures were scrutinized by the Department in the recertification process, it appears
that OIG interprets the Department’s regulations differently than the Department.
                                  VI.
	
     FINDING 2 DEMONSTRATES CONFUSION IN THE DRAFT AUDIT ABOUT THE 

             REGULATIONS RELATING TO STUDENT WITHDRAWALS
	

        The Draft Audit demonstrates apparent confusion about the purpose and
meaning of the 14-day rule discussed in the DCL GEN-04-03. Exhibit 1.1. The 14-day
rule is used solely to determine the date of determination for R2T4 purposes. 34 C.F.R.
§668.22. The purpose of DCL GEN-04-03 is made clear in its summary section on the
first page of the letter.13 Since the rule only has relevance in the context of

13
  In pertinent part, DCL GEN-04-03 states: “Summary: This letter provides additional guidance on the
application of the Return of Title IV Aid requirements.” (Emphasis added). Thus, the letter has no
relevance to the issues OIG raises in Finding 2 relating to when to drop students.
Final Report
ED-OIG/A06H0016                                                                Page 47 of 57

determinations of the amount and timing of any amounts due to be returned pursuant to
R2T4, it remains unclear why the Draft Audit cites the letter in the context of Finding 2
but it is apparent that OIG erroneously concludes that it has relevance for use in
determining if and when to drop a student. As a result, this finding should be removed
from this report.
       With respect to this finding, the Draft Report’s fundamental observation is that it
was unable to find documentation of the School’s interaction with students in the context
of determining withdrawals. The comments attributed to officials at CCC confirm those
officials properly understand the requirements of unofficial withdrawal determinations.
CCC’s Title IV management and documentation capabilities have improved significantly
with a centralized database for maintaining all student communications. The student
records database also improves controls for monitoring and enforcing policies and
procedures as recommended in the Draft Audit.
                                     VII.
	
                FINDING 3 DOES NOT JUSTIFY A LETTER OF CREDIT 


       Finding 3 is inconsistent with information OIG provided CCC after the Draft Audit
was issued. CCC requested the student detail information relating to Finding 3 in order
to assist in this response. The information OIG provided appears as part of Exhibit 12
and it only identifies five students relevant to Finding 3. That information is inconsistent
with Finding 3 in the Draft Audit which identifies ten students associated with alleged
late returns. That inconsistency has not been resolved at any point in time by OIG.
Since OIG provided the information appearing in Exhibit 12 after the Draft Audit was
issued, it is reasonable to conclude that Finding 3 only involves five students as
opposed to the ten to which reference is made in the Draft Audit.
       The Draft Audit also asserts that corrections made by CCC in the context of its
self-audit in the latter half of 2006 pursuant to which CCC updated return calculations
and payments constitute late payments in the context of its request for a Letter of Credit
(“LOC”). Such an assertion undercuts the credibility of its request for a LOC since it
results in a situation in which CCC is being threatened with punishment for having acted
responsibly and professionally in performing the self-audit. Such actions should be
Final Report
ED-OIG/A06H0016                                                                            Page 48 of 57

encouraged by OIG rather than discouraged and it is unreasonable to conclude that a
LOC is necessary or justified under these circumstances.
        Furthermore, the spreadsheet in Exhibit 11 verifies that only two students cited in
the Draft Audit relate to late returns.14 Because the School maintains that are only two
late returns identified in this finding, there is no regulatory basis for the Draft Audit’s
request for a LOC. The Draft Audit states that 34 C.F.R. §668.173(c)(1)(i) requires
posting a LOC if an audit detects late returns at or exceeding 5% of the audit sample.
However, the Draft Audit fails to identify additional regulatory guidance appearing at
page 2-195 of the Chapter 11 of Volume 2 in FSA’s Handbook 2006/2007 stating the
Department still considers a school to have timely paid its returns if there are no more
than two late returns in the sample without regard to the number of percentage or late
returns in the sample.
        The request for a LOC is unjustified since CCC satisfies the regulatory
requirement for timely returns.



                                   VIII.
	
     FINDING 4’s FOCUS ON LDA IS CONTRARY TO REGULATORY GUIDANCE
	

        The Draft Audit contains a mistake requiring a re-evaluation of its claims that
CCC made improper disbursements to students who had withdrawn from school.15
Specifically, the Draft Audit makes the following interpretative statement that is
unsupported by the regulation:
        CCC disbursed Title IV, HEA program funds to students who 

        withdrew, disbursing amounts after the students’ LDA. We 

        randomly selected 33 students from the universe of 321 

        students who received Title IV, HEA program funds and 

        withdrew during the 2006-2007 award year. For 20 of the 33 

        (61 percent), CCC made improper Pell and/ or FFEL late 

        disbursements between 3 to 105 days after the students’ last 

        date of attendance.
	


14
   One of the three returns for             was paid 3 days beyond the 45-day requirement of 34 C.F.R. 

§668.22(j)(1). The other two were each made on the forty-second day. The return for 

was made 49 days after the date of determination on September 20, 2006. Exhibit 11.
	
15
   As with the other findings in the Draft Audit, the School is unable to provide a detailed student-by-
student, finding-by-finding response because the Draft Audit only contains conclusions without such 

detail. 

Final Report
ED-OIG/A06H0016                                                                Page 49 of 57

       The Draft Audit also quotes portions of 34 C.F.R. §668.164, stating that a student
must be enrolled in order to receive disbursements. Apparently, the Draft Audit equates
enrollment with attendance despite the fact that they are not the same. Prior to the date
a school determines that a student should be withdrawn, the student is still enrolled.
Notwithstanding, the Draft Audit concludes that payments/disbursements of Title IV
funds cannot be made after the LDA. Since the issue in this finding relates to R2T4, the
following guidance in Volume 5, Chapter 2, at page 5-49 of the FSA Handbook for
2006/2007 is clear and unavoidable.
       Generally, a student’s Title IV funds are disbursed when a 

       school credits a student’s account with the funds or pays a 

       student or parent directly with: 


   	 Title IV funds received from the Department, or
   	 FFEL funds received from a lender, or institutional funds 

      used in advance of receiving Title IV program funds. 

      (Emphasis added). 


The guidance continues:

       A student’s aid is counted as aid disbursed in the calculation 

       if it is disbursed as of the date of the institution’s 

       determination that the student withdrew (see the discussion 

       under Date of the institution’s determination that the student 

       withdrew). (Emphasis in original). 


Therefore, the Draft Audit reflects confusion about a number of concepts critical to the
finding that undermine the finding and require a re-evaluation of the finding altogether.
Specifically, the Draft Audit confuses LDA with the date of determination. OIG
maintains that CCC disbursed funds after students’ LDA. This statement may be true
but it does not comport with the regulations and certainly does not establish a violation
of the regulations since the regulations are clear that Title IV aid is considered
disbursed as of the date of the institution’s determination that a student withdrew. By
definition, the date of determination occurs after the LDA.
       As a result, the conclusions and amounts identified in this finding are inaccurate
and must be recalculated and presented on a student-by-student basis before CCC can
provide a complete response. In any event, to the extent OIG measured tardy
disbursements from the LDA as opposed to the date of determination as provided by
Final Report
ED-OIG/A06H0016                                                                              Page 50 of 57

the regulations and related guidance, it is almost certain that OIG has overstated its
case in the context of this finding.
        The Draft Audit also fails to take into consideration the delay and impact HCM2
had on the timing of disbursements to the students in this finding. Exhibit 7.0 is the May
2, 2005, letter by which the Department transferred CCC to the HCM2 method of
reimbursement. As stated in the first paragraph on page 3 of that letter, under HCM2,
the Department will not release the funds until the school demonstrates it is entitled to
the funds.
        Furthermore, the Department only reimburses the School after the School
provides documentation of student eligibility and demonstrates that it has expended the
funds. In other words, the Department only reimburses the School after it shows a
posting of the disbursement on each student’s ledger card and submitted it with the
HCM2 reimbursement request. Therefore, if OIG used the date that the funds were
received by the School on reimbursement, they incorrectly determined that the
disbursements were late because the funds are considered disbursed when posted by
the School to the student ledgers prior to submitting the HCM2 reimbursement
request.16
                                 IX.
	
 FINDING 5 – CCC’s ACADEMIC YEAR SATISFIES THE REGULATIONS AND HAS 

          BEEN REVIEWED AND APPROVED BY THE DEPARTMENT 


        This finding was not presented or discussed at any time during the audit and was
first mentioned during the exit interview in January 2009, some eighteen months after
the audit. The Draft Audit references two elements in this finding. First, that CCC’s
academic year does not match its academic practice. Secondly, as a result of the first
element and because the Draft Audit alleges that CCC allowed students to progress
through programs on a self-paced basis, CCC should have prorated available Title IV
funds during the students’ last payment period.
        The Institution finds the two referenced points contradictory. First, the Draft Audit
states that CCC’s programs are structured to earn one credit for each week of
16
  It is also relevant to this analysis that certain delay is introduced through the HCM2 reimbursement
process as shown on page 4 of Exhibit 7.0. Furthermore, the school can only submit one reimbursement
submission every 30 days. As a result, even if CCC learned of information relevant to a student’s status
that may implicate issues relating to disbursement or returns, it has to wait until the Department processes
a pending request before it can make a related adjustment.
Final Report
ED-OIG/A06H0016                                                                  Page 51 of 57

instruction and then alleges that CCC programs are “self-paced” allowing students to
attend and earn credits at their own pace. The self-paced allegation is simply wrong as
shown above in Section III. The remaining point regarding academic year definition is
addressed below.
      CCC changed its academic year definition in 2007 for all programs based on
advice from its Title IV accountants. CCC understands the change was made to
facilitate better monitoring and management for all of its FSA programs. The School
promptly informed its HCM2 Payment Analyst,                            , who in turn
condoned the change. Exhibit 22, ¶8. Of course, the resulting academic year
definitions (30 weeks and 24 credit hours) meets the minimum federal requirements
discussed in the 2006-2007 Federal Student Handbook Volume 3 at pages 3-1and 3-2.
The School has followed the new academic year definition since the change was made.

      ACADEMIC YEAR REQUIREMENTS
      Every eligible program, including graduate programs, must have a
      defined academic year. A school may have different academic years
      for different programs. For example, a school may choose to define
      the academic year for a term-based program differently from a
      nonterm program. In some cases the definition must be different,
      such as in the case of a clock-hour program and a credit-hour
      program. For FSA purposes, the academic year is defined in weeks
      of instructional time and for undergraduate programs in credit or
      clock hours. It need not coincide with a program’s academic
      calendar. (Emphasis added).

      Thirty-week minimum of instructional time
      There is a minimum standard of 30 weeks of instructional time for an
      academic year. In cases where the program uses an academic year
      that meets the standard for credit hours or clock hours, but the
      program provides less than 30 weeks of actual instructional time,
      Pell Grant awards and, in some cases, the annual loan limits for
      Stafford Loans must be prorated, as discussed in Chapters 2, 3 and
      4. (Emphasis added).

      Credit/clock hours in an academic year
      The law and regulations set the following minimum standards for 

      coursework earned by a full-time student in an academic year in an 

      undergraduate educational program: 

      • 24 semester or trimester credit hours or 36 quarter credit hours for 

      a program measured in credit hours; or 

      • 900 clock hours for a program measured in clock hours. 

      (Emphasis added). 

Final Report
ED-OIG/A06H0016                                                               Page 52 of 57


       In support of the Draft Audit’s assertion that CCC’s academic year definition does
not match its academic practice, the Draft Audit erroneously asserts that students earn
one credit hour per week. While sometimes accurate, it is not uniformly accurate
because CCC’s programs incorporate a number of courses of varying length. Course
lengths vary from one to sixteen weeks and possibly longer if an externship is involved.
The credit value assigned courses also vary between one-half and eleven credits.
Furthermore, student schedules rarely reflect the same sequential ordering of courses
because the ordering of courses is largely dependent on when the student enters the
program. These dynamics are the main reason why CCC changed its academic year
definition to a standard 30-week, 24 semester credit academic year. Again, the change
resulted in simplified administration and better management of the various programs.
Exhibit 21,¶11.
       The regulations do not require institutions to use an academic year definition
reflecting every possible program schedule. Rather, schools are required to define an
academic year for each program and that a minimum of 30 weeks and 24 semester
credits are available for that period. CCC meets that regulatory requirement.
       As previously shown, CCC does not offer self-paced programs. Additionally,
students do not begin a second academic year until satisfying academic year
requirements both in credits and weeks. CCC calculated student aid on a pro-rata basis
determined by the number of weeks and credits in the payment period, the academic
year definition, an evaluation of how long full-time students would complete the weeks
and credits, and according to the student’s individual aid eligibility. CCC uses the Pell
Formula 4 provided for by federal regulation. 34 C.F.R. §690.63(a) and (e).
       Finally, each alleged pro-rating error in the Draft Audit occurred during the period
CCC was on HCM2 such that ED already reviewed and approved CCC’s treatment in
those instances. The Payment Analyst would have to evaluate and approve those
calculations before approving the related disbursements. In fact, the Payment Analyst
specifically instructed CCC regarding its pro-ration of Pell on September 28, 2006, and
CCC continued to use the equivalent of that formula throughout the Award Year.
Exhibit 7.13.
Final Report
ED-OIG/A06H0016                                                                          Page 53 of 57

                                  X.
	
 CCC’s 90/10 CALCULATIONS AND ITS RELATED POLICIES AND PROCEDURES
               ARE SUFFICIENT TO SATISFY 34 C.F.R. § 600.5

         CCC maintains sufficient policies and procedures ensuring compliance with the
90/10 requirements set forth in 34 C.F.R. § 600.5. Even with its alleged deficiencies,
OIG concedes CCC satisfied 90/10 requirements in fiscal year 2006.17 OIG contends
that its audit detected five deficiencies in CCC’s 2006 financial statements with respect
to its 90/10 calculation. Unfortunately, in some instances OIG fails to provide sufficient
detail supporting its conclusion such that CCC cannot provide a comprehensive
response to the assertions. Each of the five alleged deficiencies is addressed in order
below.
     1. 	 Misclassified $40,803 in (1) Title IV, HEA program revenue/excess 

          cash transactions as non-Title IV, HEA program revenue/excess 

          cash and (2) non-Title IV, HEA program revenue/excess cash 

          transactions as Title IV, HEA program revenue/excess cash. 


         The Draft Audit contains no factual details supporting the conclusion that CCC
misclassified cash transactions. As a result, CCC cannot provide a detailed analysis
and response to the claim. However, CCC maintains sufficient internal controls to
ensure that its payment transactions are properly coded and recorded based on their
source. See, Exhibit 4. Payment transactions are batch processed to prevent coding
errors and reconciled monthly. Finally, CCC has been provided with no support for the
claim that it improperly coded transactions resulting in funds being accounted for in an
incorrect category.
     2. 	 Included revenue of $28,429.69 from Clary Sage College services 

          in the denominator of the calculation. 


         CCC properly included student cash payments occurring prior to the approval
date of Clary Sage College’s (“Clary Sage”) Program Participation Agreement (“PPA”)
because the applicable regulations approve such treatment. Specifically, the regulatory
guidance in FSA’s Handbook referenced below allows Title IV aid to be disbursed
retroactively for the payment period in which the PPA was approved. As a result, it is
proper to include related cash payments received during the same payment period.

17
   OIG also concedes that CCC relied on its Title IV accounting firm in determining to include revenue
from the childcare center in its 90/10 calculation.
Final Report
ED-OIG/A06H0016                                                                   Page 54 of 57

           Vol. 2 — School Eligibility and Operations, 2006-2007,
           Chapter 2 — Applying for Participation in the FSA
           Programs, Page 2-22

           Effective date for participation
           The date the PPA is signed on behalf of the Secretary is the
           date the school may begin FSA program participation.
           Currently, there are additional steps that must be taken for
           participation in the Direct Loan Program. The Department’s
           Program Systems Service and regional offices are notified, as
           well as state guaranty agencies, that the school is approved to
           participate in the FSA programs.

           Beginning to disburse funds
           A school may make Pell Grant disbursements to students for
           the payment period in which the PPA is signed. Schools
           receiving initial certification can participate in the Campus-
           Based programs in the next award year that funds become
           available. FFEL and Direct Loan program disbursements may
           begin in the loan period that the PPA is signed on behalf of the
           Secretary. (Emphasis added).

   3. 	 Included revenue of $83,921.16 from the childcare center in the 

        denominator of the calculation. 


        CCC maintains cash revenue derived from its on-site childcare facility is
properly included in its 90/10 calculations because the facility is used as clinic and
training classrooms to provide necessary instruction to students. Furthermore, the
childcare facility is used to provide educational classroom instruction in a number of
programs such as Early Childhood Education, Medical Assisting, and Dental Assisting.
Specific regulatory approval for including the revenues in the 90/10 calculation appears
in Chapter 1 at page 2-10 of Volume 2 in FSA’s Handbook 2006/2007, which states:
       Revenues
                In figuring revenues generated by school activities, a school 

       may include only revenue generated by the school from activities it 

       conducts, that are necessary for its students’ education or 

       training. 

        The activities must be
       • conducted on campus or at a facility under the control of the 

       institution; 

       • performed under the supervision of a member of the institution’s 

       faculty; and 

Final Report
ED-OIG/A06H0016                                                                Page 55 of 57

        • required to be performed by all students in a specific educational
        program at the institution. (Emphasis in original).
In the margin of that page of the handbook FSA provides specific guidance with respect
to revenues derived from clinics or services.
        If a clinic or service is
                      operated by the school;
                      offered at the school;
                      performed by students under direct faculty
                        supervision; and
                      required of all students as part of their educational
                        program

        then revenues from the clinic or service may be included in the
        denominator of the 90/10 calculation.

The instruction students receive in the childcare center is necessary to their education
and training. The activities in the childcare center are conducted on CCC’s campus and
the facility is controlled and supervised by CCC and its employees. All students in the
relevant programs are required to attend instruction at the childcare center in order to
satisfy their program requirements. CCC’s 90/10 calculation for the relevant period is
accurate and properly includes revenue derived from its childcare facility because CCC
satisfies each of the components required by the regulations as articulated in the
referenced FSA Handbook.
   4. 	 Included $15,215 that was not accounted for on a cash basis.

         This assertion is simply inaccurate. CCC always calculates the percentage of
revenue derived from the Title IV, HEA programs on a cash basis and the firm that
audits CCC for its 90/10 calculation has certified its accuracy. Exhibits 8.1, 8.2, and 8.3.
Exhibit 21,¶13. Since OIG provides no detail in support of its claim regarding CCC’s
use of cash basis accounting, CCC cannot provide a more detailed response at this
time.
   5. 	 Included $6,225 of revenue that contained non-institutional charges 

        (admissions testing fee). 


         This is another inaccurate statement. In fact, CCC has never charged an
“admissions or testing fee”. The Institution collects a small cash payment during
enrollment which is applied against the balance due in the enrollment contract. OIG
apparently made this finding because periodic vernacular references are made to an
Final Report
ED-OIG/A06H0016                                                                Page 56 of 57

“application fee” but CCC’s student account ledgers clearly and accurately reflect the
amounts as payments of institutional charges. The School is taking action to eliminate
continued inaccurate references to the payment as an application fee.
        It is significant to Finding 6 that CCC’s annual 90/10 calculation and related
internal controls have also been audited by an independent firm specializing in Title IV
administration. In each instance, including the period relevant in the Award Year
audited by OIG, CCC has satisfied its accountants as to its relevant accounting
procedures and those accountants have certified CCC’s 90/10 calculation without
reservation.
                                         XI.
	
                                     CONCLUSION
	

        The above identifies significant errors in the Draft Audit justifying issuance of a
final audit with no findings. However, even if OIG continues to maintain the merit of any
of the findings in the Draft Audit, the recommended action is inappropriate under the
circumstances given the delay associated with issuance of the Draft Audit and the fact
that it seeks evaluation and modification of school records for award years occurring as
much as five years ago. Those records have already been extensively reviewed by
regulators and the School and significant liabilities and sanctions have been paid and
incurred.
        The Draft Audit covered the 2006-2007 award year. Significant changes
improving Title IV compliance have occurred at CCC since the beginning of that award
year. The CFO and Director of Financial Aid provide much improved knowledge of the
requirements of Title IV and they have implemented policies and procedures the Draft
Audit suggests may have been lacking during the Award Year two years ago.
Furthermore, the School’s use of experienced Title IV auditors improved CCC’s
compliance with Title IV. CCC’s financial and compliance audits for 2006, 2007, and
2008, provide objective evidence of CCC’s compliance with Title IV regulations.
Recertification by the Department also provides objective evidence of the changes at
CCC and of its on-going compliance with Title IV.
        As a result, the requests in the Draft Audit for additional reviews relating to the
Award Year and prior years is unnecessary given CCC’s documented compliance with
Title IV regulations. If performed, the requests in the Draft Audit merely cause
Final Report
ED-OIG/A06H0016                                                              Page 57 of 57

unnecessary expense and diversion of time from the School’s mandate to provide
quality education while complying with the numerous regulatory layers intended to
protect students and the public fisc. For these reasons and those provided above in
response to the specific findings, CCC respectfully requests OIG to close its audit of the
Award Year and issue no findings requiring any follow-up or action by the School.

                                         Respectfully submitted on behalf of Community
                                         Care College,

                                         /s/


                                         Gerald M. Ritzert, Esq.
                                         Ritzert & Leyton, P.C.
                                   11350         Random Hills Road, Suite 400
                                   Fairfax,       Virginia 22030
                                         (703) 934-2660/9840 (facsimile)
                                         Counsel to Community Care College

Date: June 1, 2009