oversight

Audit of Kaw Area Technical School.

Published by the Department of Education, Office of Inspector General on 2004-05-20.

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

                                                            -   --------~--~--~~~-            ~~-----,------,-------,




                                  UNITED STATES DEPARTMENT OF EDUCATION
                                              OFFICE OF INSPEctoR GENERAL
                                                      KANSAS CITY OFFICE         .

                                             893Q Ward Parkway, Suite 2401
                                            Kansas City, Missouri 64114-3302

 AUDIT SERVICES                                                                                                INVESTIGATION SERVICES
                                                 Telephone (816) 268-0500
FAX (816) 823-1398                                                                                                FAX (816) 268-0526

                                                         May 20, 2004


       Richard Hoffinan, Director
       Kaw Area Technical School
       5724 SW Huntoon
       Topeka, KS 66604-2199

       Dear Mr. Hoffinan:

       This Final Au~it R~ (Control Number ED-OIG/A09'-DOO26) presents the results of
       our audit ofK.aw Area Technical School (KATS). Our objective was to detennine if
       KATS was in compliance with the requirement that, to ~ eligible ,to participate in the
       Title N Student Financial Assistance programs, postsecondary vocational institutions
       must admit as regular students only individuals who have a high school certificate or its
       equivalent or are beyond the age ofcompulsory school attendance. This requirement is
       defined in sections 101(a)(l) and 102(c)(2) of the Higher Education Act of 1965, as
       amended (HEA).

                                                     AUDIT RESULTS

       We found that KATS' is not eligible to participate in the Title N student aid programs
       because it is not in compliance with the requirement set out in sections 101(a)(l) and
       102(c)(2) of the HEA. In addition, KATS may nothave been eligible to participate in
       these programs since at least 1997, when, KATS officials informed us, the age of
       compulsory school attendance was changed from 16 to 18 in Kansas.

       Under sections 101(a)(I) and 102(c)(I)(B) of the HEA, in order to participate in the Title
       IV programs ~ ''postsecondary vocational institution" must, among other requirements,
       admit "as regular students only persons having a certificate of graduation from a School
       providing secondary education, or the recognized equivalent of such a certificate ...."
       Section 102(c)(2) further provides that the "term 'postsecondary vocational institution'
       also includes an educational institution in any State that, in lieu ofthe requirement of
       paragraph (I) of section 101(a), admits as regular students persons who are beyond the
       age ofcompUlsory school attendance in the State in which the institution is located."


             Our misswn is to ensure equal aecess to educatwn and to promote educational exceUence throughout the Nation.
At 34 C.F.R. § 600.2, a “regular student” is defined as a “person who is enrolled or
accepted for enrollment at an institution for the purpose of obtaining a degree, certificate,
or other recognized educational credential offered by that institution.”

Based on discussions with KATS officials and a review of hard-copy student files, we
found that during our audit period, Academic Year (AY) 2002-03, KATS enrolled high
school students who were not above 18 years-of-age as regular students. Postsecondary
students and high school students under the age of compulsory school attendance were
enrolled in the same programs, received the same instruction from the same instructors,
and received the same diplomas certifying program completion. High school students
represented 46 percent of the students enrolled at KATS.

In response to our finding, KATS officials told us that they did not know that their
enrollment of high school students under the age of 18 was a violation of Title IV
institutional eligibility requirements. They said that the school continues to enroll such
students, as do other area technical schools in Kansas.

Recommendations:

We recommend that the Chief Operating Officer for Federal Student Aid (FSA)
   1. 	 Take immediate action under 34 C.F.R. § 600.41 to terminate KATS’ 

        participation in the Title IV programs as a result of it not being an eligible

        institution; 

   2. 	 Review KATS’ enrollment practices prior to AY 2002-03 to identify those
        periods in which it was not in compliance with the Title IV institutional eligibility
        provisions discussed in this report; and
   3. 	 Require KATS to return the amount of Title IV aid distributed to its students
        during AY 2002-03 ($882,445), as well as the amount of such aid distributed
        during those periods in which it was not in compliance with the Title IV
        institutional eligibility provisions. For AY 2002-03, $374,040 in Federal Pell
        grants should be returned to the Department and $508,405 in Federal Family
        Education Loans (FFEL) to the appropriate lenders on behalf of the borrowers.




                                              2

                   AUDITEE COMMENTS AND OIG RESPONSE

KATS disagreed with the finding and all of the recommendations of the draft audit
report. Its comments on the report (full text enclosed) specifically addressed both the
finding and the recommendations. The following is a summary of KATS’ comments and
our response to the comments. It is organized in the same order and under the same
headers as the KATS response.

KATS is eligible to participate in Title IV programs because KATS is an alternative
educational program, as defined by Kansas law.

KATS acknowledged that the age of compulsory school attendance in Kansas is 18 years-
of-age, but notes that there is an exemption to this requirement that states that a child who
is 16 or 17 years-of-age is exempt from the general compulsory education requirement if
“the child is regularly enrolled in a program recognized by the local board of education as
an approved alternative educational program.”

Although Kansas law does not define “alternative educational program,” KATS states
that it qualifies as an alternative educational program for several reasons:
   • 	 KATS has had a Vocational Education Agreement with each of the school 

       districts participating in its programs since before 1993. 

   • 	 This agreement establishes “a concrete and defined relationship” between KATS
       and the participating school districts, which includes
           a. 	 An agreement to cooperate in the maintenance and administration of
                KATS programs, and
           b. 	 Contribution of funds to pay for operations at KATS.
   • 	 KATS provides programs that are different from the educational program of each
       school.

OIG Response

The arguments and documents presented did not convince us that KATS in fact qualified
as an “alternative educational program” under the Kansas compulsory education statute.
The Kansas statute exempts 16- and 17-year olds from attendance at the local public
school if the students are enrolled in an approved alternative program. However, as


                                             3

acknowledged in KATS’ response, these students remain enrolled in their local public
school, and take courses both at KATS and the local public school. The KATS programs
count toward the student’s required number of credits for graduation at the high school
the student is attending, not as an alternative to earning a high school diploma.
Therefore, we concluded that the KATS program is an integral part of the students’ high
school education and not an alternative to high school.

The Vocational Education Agreements provided by KATS with its response also do not
indicate that the programs offered qualify as alternative programs. KATS did not provide
any legislative history or other independent support for its position that its programs
qualify as an alternative program under the compulsory education statute.

In its response, KATS also presented no evidence to alter our conclusion that the high
school students were admitted as “regular students.” Without conceding the issue, KATS
assumed for the sake of discussion that they were admitted as regular students.

KATS is eligible to participate in Title IV programs because the 17 participating
school districts are taking additional steps to solidify KATS’ current status as an
alternative education program, as defined by Kansas law.

KATS stated that, as of March 11, 2004, 9 of its 17 participating school districts had
approved a resolution recognizing KATS as an alternative educational program effective
July 1, 1997 and that the remaining 8 districts are expected to do likewise at upcoming
meetings. It points out that these resolutions are a formality but that it wants to ensure
that all bases are covered and that its existing status as an alternative educational program
is “fortified.”

OIG Response

Our review of the above comments did not change our position. The copies of the above-
stated resolutions by local school boards (included with the attachment to this report)
were signed between February 19 and March 8, 2004. Retroactive approval would not
alter our conclusion. Institutions must be eligible to participate in the Title IV programs
at the time Title IV funds are received.




                                              4

KATS is eligible to participate in Title IV programs because the Kansas compulsory
school attendance statute has been amended to include a specific exemption for
children enrolled in a postsecondary educational institution.

KATS stated that the Kansas House of Representatives had approved an amendment that
states a child who is 16- or 17-years-old is exempt from compulsory attendance
requirements if “the child is concurrently enrolled in a postsecondary educational
institution,” which refers to area vocational schools such as KATS as well as universities
and colleges. The proposed amendment would be “applicable to children from and after
July 1, 1997.” As of the date of KATS response, the proposal had not been passed by the
Kansas Senate.

OIG Response

Because the amendment has not been enacted, it provides no basis to alter our conclusion.

Even if KATS is found to have violated Sections 101 (a)(1) and 102 (c)(2) of the
Higher Education Act, the Draft Audit Report does not justify the excessive
sanctions that it recommends.

KATS commented that the recommendations of the draft audit report are not supported
by legal authority or other justification. It cites the U.S. General Accounting Office’s
(GAO) Government Auditing Standards in stating that audit recommendations should
“logically flow from the findings and conclusions and need to state clearly the actions to
be taken.” The recommendations are most constructive when they are “directed at
resolving the cause of identified problems, action oriented and specific, addressed to
parties that have the authority to act, practical and, to the extent feasible, cost effective
and measurable.”

KATS noted that since it did not distribute Title IV funds to ineligible students there was
no harm to the federal interest and the funds were used for their “lawful intended
purposes.” It stated that the draft audit report provides “no basis for recommending that
KATS lose its institutional eligibility or return its Title IV funding.”

OIG Response

Our review of the above comments did not change our position. In order to lawfully
distribute Title IV funds to a student, the student must be eligible, he or she must be


                                              5

enrolled in an eligible program, and the institution distributing the funds must be eligible
to participate in the Title IV programs. Congress set requirements for the types of
institutions it intended to participate in these programs. By virtue of KATS’ failure to
satisfy one of these requirements, it was not such an institution and its students should not
have received Title IV aid. KATS distributed federal funds that were not lawfully its to
distribute. The recommendations in our report lawfully, logically, and reasonably flow
from KATS’ noncompliance. The legal citations we offer in the report justify our finding
and our recommendations flow from the finding. From the federal perspective, the
recommendations satisfy the GAO Government Auditing Standards. They are “action
oriented and specific” and are directed to the Department’s Chief Operating Officer for
Federal Student Aid, who is the party with the authority to act.

Even if KATS is found to have violated Sections 101(a)(1) and 102(c)(2) of the
Higher Education Act, and even if the appropriate remedy is determined to be
return of Title IV funds, the amount should be lower because: (1) the Draft Audit
Report did not accurately identify the amount of Title IV funds disbursed in AY
2002-03, and (2) the Draft Audit Report did not use the actual loss formula in
recommending an amount to be returned.

KATS commented that the draft audit report overstates the amount of Title IV funds
disbursed to its students during our audit period, AY 2002-03. It noted that its records
show that $720,168 in Pell grants and FFEL loans were disbursed in that year, as opposed
to the $882,445 cited in the report. KATS also pointed out that the report did not take
into account Department policies that require the application of an actual loss formula. It
noted that, if the formula is not used, there would be a windfall to the federal government
due to payment by KATS and subsequent collection from borrowers on the same loans.

OIG Response

Our review of the above comments did not change our position. The difference between
the KATS total Title IV disbursement figure and the one cited in our draft audit report is
due to a difference in the FFEL disbursement figure KATS cited ($346,128) and the
figure in our report ($508,405). Our figure was drawn from the National Student Loan
Data System (NSLDS), and KATS stated that its figure was from school records. KATS
provided no evidence for us to conclude that FFEL disbursements were in fact less than
those recorded in NSLDS. KATS can present additional evidence on the disbursement
amounts during audit resolution. Use of the actual loss formula to resolve questioned
costs is at the discretion of the Department and is appropriately handled during the audit
resolution process. The details of any repayment instructions will insure that there is no


                                             6

duplicative recovery. We did modify Recommendation 3 to clarify that FFEL funds
should be returned to the lender.

                                   BACKGROUND

KATS is one of 11 area technical schools in Kansas that were established pursuant to
state law enacted in 1963. The Council on Occupational Education is the school’s
accrediting agency. In addition to serving postsecondary students, KATS serves high
school students from 17 school districts in and around the city of Topeka.
Administratively, it is part of Topeka Public Schools, Unified School District No. 501,
and is under the oversight and coordination of the Kansas Board of Regents. KATS
identifies its mission as offering “educational opportunities to high school,
business/industry and adult students by providing quality technical training to meet
individual and labor market needs.”

The KATS Internet site notes that it offers over 30 diploma programs. In AY 2002-03,
KATS enrolled 1,124 individuals in these programs, 517 of which were high school
students. Students who enroll at KATS at the beginning of their junior year of high
school are able to graduate with a KATS diploma at the end of their senior year in high
school. High school counseling staff stated that KATS courses taken by high school
students count as electives towards high school graduation requirements. During AY
2002-03, KATS students received $882,445 in Title IV financial aid ($374,040 in Pell
grants and $508,405 in Federal Family Education Loan disbursements).

                   OBJECTIVE, SCOPE, AND METHODOLOGY

Our objective was to determine if KATS was in compliance with the requirement that
postsecondary vocational institutions must admit as regular students only individuals who
have a high school certificate or its equivalent or are beyond the age of compulsory
school attendance in order to be eligible to participate in Title IV Student Financial
Assistance programs.

To accomplish our objective, we
   •   Reviewed applicable sections of the HEA and regulations;
   •   Reviewed state law regarding the age of compulsory school attendance;
   •   Reviewed hard-copy student files;
   •   Reviewed print-outs from the KATS electronic student information system;



                                            7

   •   Reviewed KATS policy and procedure documents; and
   •   Interviewed KATS managers and staff.

For our review of student files, we randomly selected 52 files from 3 programs, which,
we had been informed, were popular, or fully enrolled (Automotive Technology,
Collision Repair, and Electricity, Heating, and Air Conditioning). We tested the
accuracy, authenticity, and completeness of the data in the school’s electronic student
information system by comparing them to source records in the 52 hard-copy student
files we had selected. We concluded that the data contained in these systems were
sufficiently reliable to be used in meeting the audit’s objective.

We performed on-site fieldwork at KATS offices from September 29 through October 2,
2003, on which day we held a field exit conference. We conducted additional review and
analyses of the materials we had obtained in our Kansas City office from October 6
through 30, 2003, and held the final exit conference on November 6, 2003. We
conducted the audit in accordance with generally accepted government auditing standards
appropriate to the scope of the audit described above.

                 STATEMENT ON MANAGEMENT CONTROLS

We did not assess KATS’ management control structure applicable to its participation in
Title IV programs because it was not necessary to achieve our objective.

                           ADMINISTRATIVE MATTERS

If you have any additional comments or information that you believe may have a bearing
on the resolution of this audit, you should send them directly to the following Department
of Education official, who will consider them before taking final Departmental action on
the audit:

                              Theresa S. Shaw
                              Chief Operating Officer
                              Federal Student Aid
                              U.S. Department of Education
                              Union Center Plaza, Room 112G1
                              830 First Street, NE
                              Washington, DC 20202




                                            8

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 greatly appreciated.

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

                                             Sincerely,



                                         · do--~
                                         ¥   ltchard J. Dowd
                                             Regional Inspector General
                                               for Audit


Enclosure




                                             9

                                                                                                                                                    5724 SW Huntoon SI.
                                                                         ~~   _____     _ _~ ___ ~ __ ~ _~ ~ ____________________TOEel,a. KS 66604-112P
                                                                                                                                                        Ph: 785-273-7140
                                                                                                                                                           1-877 -588- 7140
                 Technical School
                     TOPEKA. KANSAS




           March 	12, 2004

           VIA FACSIMILE - HARD COPY TO FOLLOW
                                                                                                                                       MAR 15
           William Allen 

           Regional Inspector General for Audit 

           U.S. Department of Education 

           Office of Inspector General 

           Kansas City Office 

           8930 Ward Parkway, Suite 2401 

           Kansas City, Missouri 64114 


                       Re: 	        Office of Inspector General Draft Audit Report 

                                    Audit Control Number ED-OIG/A07-D0026 


           Dear Mr. Allen:

                    This letter presents Kaw Area Teclmical School's (hereafter, "KAIS")
           preliminary comments in response to the January 23,2004 Draft Audit Report issued by
           the United States Department of Education (hereafter, the "Department," or "ED"). In a
           letter dated February 20, 2004, KATS requested from ED an extension for submitting this
           response. On February 23, 2004, via electronic mail, ED granted an extension until
           March 12,2004.

                  Per your electronic communication dated March 10, 2004, this letter is being
           transmitted via facsimile and a hard copy, which will include all attachments, will be sent
           to you via regular mail.

                    The Draft Audit Report contains one finding focusing on whether KATS is
           eligible to pmiicipate in the federal Student Finm1cial Aid (hereafter, "Title IV") progrmTI.
           The finding erroneously claims that KATS is ineligible to participate in the Federal Title
           IV student financial aid programs because it fails to meet the definition of an eligible
           institution as set forth in sections 101(a)(1) and 102(c)(2) ofthe Higher Education Act
           (HEA). Draft Audit RepOli, p. 1. These sections define an eligible institution of this type
           as a postsecondm-y vocational institution that admits only high school graduates, or
           individuals with high school equivalency celiificates, as regular students. Alternatively,
           an eligible institution of this type may also be a postsecondary vocational institution that
           admits as regular students only persons beyond the age of compUlsory education,
           according to the laws ofthe state in which the school is located.

                   The Draft Audit Report erroneously concludes that KA IS fails to meet the
           definition of eligible institution and is therefore ineligible for pmiicipation in the Title IV


COOPERATING UNIFIED DISTRICTS
No. 321-KawValley- No. 335--North Jackson- No. 336-Holton-No. 337-Mayetta-No. 336-ValleyFaIiS-No. 33(MJefferson Co. NO.-No. 34O-Jefferson West-No. 341-Oskafoosa-No. 342-McLouth
         No. 343-Perry-No. 345-Seaman-No. 372-Silver Lake-No. 434-Santa Fe Trail-No. 437-Auburn-Washburn-No. 4SQ-Shawnee Heights-No. 454-Burlingame-No. 501-Topeka
programs because it allegedly enrolled as regular students high school students who were
under the age of compulsory education in Kansas. Draft Audit Report, p. 2. Based on
this conclusion, the Draft Audit Report recommends that the Chief Operating Officer for
Federal Student Aid: (1) tem1inate KATS' participation in the Title IV programs as a
result of it not being an eligible institution; (2) review KA TS' enrollment practices prior
to Academic Year ("A Y") 2002-03 to identify periods in which it was not in compliance
with Title IV eligibility provisions discussed in the Draft Audit Report; and (3) require
that KATS retum the amount of Title IV aid distributed to its students during AY 2002­
03 ($882,445), as well as the amount of such aid distributed during those periods in
which it was allegedly not in compliance with the Title IV institutional eligibility
provisions. Draft Audit RepOli, p. 2.

        KATS disagrees with the findings contained in the Draft Audit Report and the
Office of Inspector General's (hereafter, "OIG") recommendations, for the reasons set
forth herein.

1.      BACKGROUND

        KATS is a vocational school in Topeka, Kansas that serves students from 17
school districts in and around the city of Topeka, Kansas - Kaw Valley, North Jackson,
Holton, Royal Valley, Valley Falls, Jefferson County NOlih, Jefferson County West,
Oskaloosa, McLouth, Perry, Seainan, Silver Lake, Santa Fe Trail, Aubum Washbul11,
Shmvnee Heights, Burlingame, and Topeka. KATS has participated in Vocational
Education Agreements with these districts since before 1993 (see attachments).1 The first
attached agreement ran from 1993-1998, the second ran from 1997-2000, and the cunent
agreement was executed in 2000 and runs through 2005.

        The majority of KATS' regular students are high school graduates, over 18 years
old, or both. A "regular student" is a "person who is enrolled or accepted for enrollment
at an institution for the purpose of obtaining a degree, certificate, or other recognized
educational credential offered by that institution." 34 CFR § 600.2 (2004). KATS also
admits juniors and seniors in high school who may be either 16- or 17 -years-old. Of the
440 high school students admitted by KATS, between 250 and 300 are under age 18.
These are the students that have given rise to this audit. The high school students take
classes both at KATS and at their respective high schools. If a student enrolls in KATS
dming his or her junior year of high school, upon successful completion of the
cuniculum, he or she wjll graduate with both a KATS diploma and a high school diploma
at the end of his or her senior year in high school.

        KA TS does not distribute Title IV aid to any student below age 18. 2 All of the
Title IV funds distributed by KATS were received by regular students who were age 18


I KATS participated in Vocational Education Agreements with area school districts prior to 1993. 

Although KATS is only submitting evidence of Vocational Education Agreements going back to 1993, 

KATS asserts that it participated in such agreements for many years prior to 1993. 

2 At a hearing held by the U.S. Senate's Health. Education, Labor and Pensions Committee on March 4, 

2004, the issue of extending individual eligibility for Pell grants to concurrently emolled high school 



                                                     2

and older and met the definition of "eligible student" for Title IV purposes. See 34 CFR
~ 668.32.


       During Academic Year 2002-03, KATS distributed $720,168, as opposed to the
$888,445 figure cited by ED, in Title IV funds to eligible students. Of that total,
$374,040 represented Pell grants and $346,128 represented Federal Family Education
Loan Programs (FFELP) loans.

II. 	   FINDING -INSTITUTIONAL ELIGIBILITY TO PARTICIPATE IN
        TITLE IV PROGRAMS

        The issues raised by the Draft Audit Report are: (1) whether KA TS admitted as
regular students individuals below the age of compulsory education in Kansas; (2) if
KA TS did admit as regular students individuals below the age of compulsory education,
whether doing so creates institutional ineligibility for KATS; and (3) even if a technical
violation of institutional eligibility has occurred, whether the punitive and far reaching
sanctions of the Draft Audit Report represent a reasoned response to a situation where aid
was only distributed to eligible students in programs that meet the eligibility
requirements. See 34 CFR §§ 600.4, 600.6, 600.7.

A. 	 KATS is eligible to participate in Title IV programs because KATS is an
     alternative educational PI'ogl'am, as defined by Kansas law.

       The Draft Audit Repoli relies on the allegation that KATS admits as regular
students persons who are below the age of compulsory education in Kansas. Draft Audit
Report, p. 1-2. Kansas state law dete1111ines the age of compulsory education. For the
purposes of this discussion, we will assume that the students were admitted as regular
students. However, we are not conceding that they were, in fact, admitted as regular
students.

        The general compulsory education requirement under Kansas law, subject to other
statutory provisions, is that "every parent or person acting as parent in the state of
Kansas, who has control over or charge of any child who has reached the age of seven
years and is under the age of 18 years and has not attained a high school diploma or a
general educational development (GED) credential, shall require such child to
continuously attend each school year ... " a public, private, denominational, or parochial
school. K.S.A. § 72-1111(a) (2003).

         However, the statute includes an important exemption that is applicable to KAIS.
If a child is 16 or 17 years of age, "the child shall be exempt from the compulsory
attendance requirements of this section if (1) the child is regularly enrolled in a program
recognized by the local board of education as an approved altemative educational



students was discussed. The witnesses uniformly rejected this idea, insisting that expanding Pell eligibility
in this manner would dilute the overall Pell grant program and harm other students. KA TS has no plans to
seek or support Pell grants for concurrently enrolled secondary students.


                                                      3
program .... " K.S.A. ~ 72-1111 (b)( I) (2003). However, Kansas law does not define
"alternative educational program."

        KA TS is currently in a Vocational Education Agreement ("Agreement") with 17
participating school districts. See K.S.A. ~ 72-4421 (2003). KATS has been a
participant in such agreements since before 1993, and its cun-ent agreement runs through
2005. The Agreement establishes KATS as an approved area vocational school for the
participating school districts. Seeid. at § 72-4412.

         KA TS is an altemative educational program for the 17 participating school
districts under the Agreement, and has been since before 1993. The Agreement
establishes a concrete and defined relationship between KA TS and the 17 pat1ici pating
school districts. According to the Agreement, the 17 participating school districts agree
to "paIiicipate and cooperate in the establishment, conduct, maintenance, and
administration of vocational education courses or programs at KA TS facilities ...." The
Agreement also requires that KA TS maintain an Advisory Council, comprised of the
superintendents from the 17 paIiicipating school districts. Each participating school
district is required to contribute funds to a single Area Vocational Fund, which is used to
pay for operations at KA TS, and may also pay for tuition for a course or program not
offered by one of the participating school districts. Finally, positions in classes at KA. TS
are allocated to each participating school district in proportion to its payment to the Area
Vocational Fund.

       The current Agreement was approved by the board of education from each of the
17 pa11icipating school districts, and was approved by the Kansas State Board of Regents
on November 15,2000.

       KA TS became an altemative educational program before 1993, and it has been an
altemative educational pro§,'Tam continuously up to this date. The districts send students
to KA TS who they detem1ine would benefit from KA TS' vocational education program,
which is generally not otherwise offered by the districts themselves. As a result, the
students maintain concurrent em-ollment at their respective high schools and at KATS,
which enables the students to receive both a high school diploma and aKATS degree
upon successful completion of each cun-iculum.

        Because KATS is providing a service not otherwise available to students within
the 17 participating school districts, and because the students are enrolled in a program
different from the normal educational program within each district, KATS is an
altemative educational program. In addition, in order for the Agreement to be effective,
each participating district's school board had to approve it in writing, as did the Kansas
State Board of Regents. As a result, KATS is an altemative educational program under
the Vocational Education Agreement.

        The state rules pertaining to compulsory school attendance control in this
situation. The Kansas legislature carved out an exemption to the compulsory school
attendance statute, saying that a 16- or 17-year-old child who is regularly enrolled in an



                                              4

alternative educational program is exempt from the state's compulsory school attendance
requirements. Because KA TS has been an alternative educational program for the 17
]Jnrticipating school districts since before 1993, its students below age 18 are exempt
from the Kansas compulsory school attendance statute, and therefore legally beyond the
age of compulsory education. Therefore, KATS only admits students who are beyond the
age of compulsory education, either by chronological age or statutory exemption, and is
eligible to participate in Title IV programs.

B. 	 KATS is eligible to participate in Title IV programs because the 17 paa-ticipating
     school districts ue taking additional steps to solidify KA TS' current status as an
     alternative education program, as defined by Kansas law.

         KA TS maintains that, based on the Vocational Education Agreement, it is an
altemative educational program under Kansas law, and therefore eligible to participate in
Title IV programs because its 16- and 17-year-old concunently enrolled students are
exempt from the Kansas compulsory school attendance requirements. However, to
ensure that all bases are covered, the 17 participating school districts are cUlTently in the
process of passing additional resolutions, separate fi'om the Vocational Education
Agreement, that approve KATS as an altemative educational program. This is a mere
f01111a!ity. \Vhen the all of the 17 participating school boards pass these resolutions, the
relationship between KATS and the districts, and the programs offered to the districts'
students, will be no different. KA TS will continue to be an alternative educational
program, just as it had been under the Vocational Education Agreement alone.

        As of March 11, 2004, nine out of 17 school boards approved a resolution
recognizing KATS as an altemative educational program effective July 1, 1997. Copies
of each approved resolution are attached to this letter. A tenth school board - the Board
of Education of Jefferson County West - will approve the resolution on April 1,2004.
We expect that the remaining seven school boards will approve the resolution. These
seven school boards have meetings scheduled and the resolution is listed as an agenda
item for each meeting. It is expected that all of the remaining school boards will approve
the resolution at their upcoming meetings.

        Again, this process is a mere fonnality because KATS has been as an altemative
educational program since before 1993. KA TS already satisfies the relevant exemption
to the Kansas compulsory education statute. By passing these resolutions, the 17
participating school boards are merely creating additional documentation to f0l1ify
KATS' existing status as an altemative educational progranl. By satisfying the statutory
exemption, KATS' 16- and 17-year-old students are legally beyond the age of
compulsory education in Kansas. Consequently, KATS only admits students who are
beyond the age of compulsory education in Kansas, either by chronological age or by
statutory exemption. Therefore, the audit finding is inconect and KATS is eligible to
participate in the Title IV programs.




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C. 	 KA TS is eligible to participate in Title IV programs because the Kansas
     compulsory school attendance statute has been amended to include a specific
     exemption for children enrolled in a postsecondary educational institution.

       As of the date of this letter, the Kansas legislature is in the process of approving
an amendment to the compulsory school attendance statute. The amendment passed the
Kansas House of Representatives unanimously, 125-0. On March 9, 2004, the Kansas
Senate Education Committee held a hearing to examine the amendment to the
compulsory school attendance statute. It is expected that the amendment will pass the
Kansas Senate.

         This amendment creates an additional exemption to the requirements pertaining to
the age of compulsory education. When passed, K.S.A. § 72-1111 (b )(3) shall state that a
child who is 16 or 17 years old shall be exempt from compulsory attendance
requirements if "the child is conculTently enrolled in a postsecondary educational
institution" as defined by Kansas law. This exemption is "applicable to children from
and after July 1,1997 and shall relate back to such date." ld.

         Under Kansas law, a postsecondary educational institution is defined as "any
public university, municipal university, community college, technical college and
vocational education school, and includes any entity resulting from the consolidation or
affiliation of any two or more of such postsecondary educational institutions." K.S.A. §
74-3201b(h) (2003). Kansas defines "vocational education school" as "any area
vocational school or area vocational-technical school established under the laws of'
Kansas. lei. at § 74-3201b(f).

        KA TS is an approved area vocational school under Kansas law (see attached
Vocational Education Agreement and course catalog), and therefore satisfies the Kansas
definition of "vocational education school." As such, it meets the definition of a
postsecondary educational institution under Kansas law. This means that any 16- or 17­
year-old who is enrolled at KATS is exempt from the compulsory school attendance
requirements. The KATS students who are below age 18 and regularly enrolled in a
diploma program are all either 16- or 17-years-old. By satisfying this statutory
exemption, these students are legally beyond the age of compulsory education. As a
result, KA TS only admits students who are beyond the age of compulsory education in
Kansas, either by chronological age or by statutory exemption. Therefore, the audit
finding is incolTect and KA TS is eligible to participate in the Title IV programs.

D. Even ifKATS is found to have violated Sections 101(a)(1) and 102(c)(2) of the
   Higher Education Act, the Draft Audit Report does not justify the excessive
   sanctions that it recommends.

        The Draft Audit RepOli recommends that the Chief Operating Officer for Federal
Student Aid: (1) tenninate KATS' paIiicipation in the Title IV programs for not being an
eligible institution; (2) review KA TS' enrollment practices prior to A Y 2002-03 to
identify periods during which KA TS was not in compliance with Title IV institutional



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eligibility provisions; and (3) require KATS to return the amount of Title IV aid
distributed to students during A Y 2002-03, as well as any aid distributed during periods
of time in which KA TS is dete1111ined to not be in compliance. Draft: Audit Report, p. 2.

        The Draft Audit Report offers no legal authority or other justification to explain
why tel111ination of eligibility and a return of Title IV funds would lawfully, logically, or
reasonably result from the cited noncompliance. Recommendations should "logically
flow from the findings and conclusions and need to state clearly the actions to be taken."
U.S. General Accounting Office, Govemment Auditing Standards, p. 170 (June 2003).
Recommendations are 1110st constructive when they are "directed at resolving the cause of
identified problems, action oriented and specific, addressed to pmiies that have the
authority to act, practical and, to the extent feasible, cost effective and measurable." Id.

        KATS did not provide any Title IV aid to students below age 18. Therefore, all of
the Title IV funds distributed by KATS were received by students who met the federal
student eligibility requirements. See 34 CFR § 668.32. As a result, there was no ham1 to
the federal interest whatsoever. The same students would have received the same Title
IV funds had KATS not admitted students below age 18. The flmds in question were
utilized for their lawful intended purposes, and the Draft Audit RepOli offers no legal
authority or other justification to explain why disallowance of all Title IV funding would
lawfully, logically, or reasonably result from the alleged noncompliance. Nowhere does
the Draft Audit Report even allege that the purported violations ever resulted in the
provision of Title IV funds to ineligible students. The Draft Audit Report is devoid of
any factual allegations of actual ham1, and it asselis no basis for recommending that
KATS lose its institutional eligibility or retum its Title IV funding.

       KATS disagrees with the recommendations of the Draft Audit Report. KATS
does not believe that the recommended liability is appropriate in this situation. Rather,
KATS is of the opinion that the recommended liability is unnecessarily excessive.
Therefore, KATS should not be subject to a termination of eligibility or a retUl11 of Title
IV funds.

E. 	 Even if KATS is found to have violated Sections 101(a){l) and 102(c)(2) of the
     Higher Education Act, and even if the appropriate remedy is determined to be
     return of Title IV funds, the amount should be lower because: (1) the Draft
     Audit Report did not accurately identify the amount of Title IV funds disbursed
     in AY 2002-03, and (2) the Draft Audit Report did not use the actual loss
     formula in recommending an amount to be returned.

         As further evidence that the recommended sanctions are arbitrary and capricious,
the Draft Audit Repoli incorrectly and drastically overstates the amount of purported
liabilities arising out ofKATS' participation in Title IV programs by elToneously
recommending that the KATS be required to retUl11 a sum totaling $882,445, which
purportedly represents all disbursed Title IV funding in A Y 2002-03.




                                              7

        First, KA TS disputes the Draft Audit Report's determination regarding the total
amount of Ti tIe rv funds distributed to students in A Y 2002-03. Accordi ng to KA TS'
records, the school distributed a total of$720,168 in Title IV funds during AY 2002-03.
The Draft Audit Report does not include any documentation to support its contention that
$882,445 in Title IV funds were actually distributed in A Y 2002-03, and it is not clear
from the text of the Draft Audit Report how this figure was detemlined. Therefore,
KATS maintains that the sum of$882,445 does not accurately reflect the school's Title
IV distributions, and therefore KATS should not be required to retum that amount.

         Second, the Draft Audit RepOli inexplicably ignores established rules limiting the
scope and quantity of any audit disallowances to the Department's actual losses. KATS'
cohort default rate is only 10%. This means that 90% on~.ATS' students are expected to
repay their loans. Yet, the Draft Audit RepOli recommends that KATS retum all Title IV
funds, a sum that includes both grants and loans. Of the $ 720,168 in Title IV funds
distributed during A Y 2002-03, $374,040 were Pell grants and $346,128 were FFEL
loans. It is expected that students will repay their loans over time. If the students repay
their loans as expected, and KATS is required to retum all of its Title IV funds, the
federal govemment will receive payment of the $346,128 in FFEL loans when it has
suffered a loss resulting from defaults and other costs far less than this amount. This
amounts to a windfall for the federal govenullent. To avoid such a windfall, the
Department's established policies require the application of an actual loss fonnula. The
actual loss fOl111Ula prevents a windfall from occurring because, rather than requiring a
refund of all loan amounts, it takes into account institutional default rates. Essentially,
the actual loss fOl111Ula uses a school's default rate to predict how many students in a
given academic year will default on their loans, and uses that figure to identify an actual
loss to the federal govel11ment. That actual loss is a more accurate approximation of the
amount that should be repaid to the federal govenm1ent, and prevents the federal
govemment fi'om receiving repayment of the same loan twice. In recommending
repurchase of the face amount of these loans, the Audit Report ignores the Department's
established actual loss fOl111Ula. Therefore, if it is detem1ined that violations have
occuued, and the appropriate remedy is found to be a retum of Title IV funds, the amount
actually retul11ed must be significantly less than the amount identified in the Draft Audit
Report because of the required use of the actual loss fOl11mla.

       We appreciate your review and consideration of this response to the ~IG's Draft
Audit RepOli, and KATS reserves the right and opportunity to submit additional
comments.

                                                     Respectfully submitted,



                                                     Richard Hoffman, General Director

Attachments




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