Audit of Glendale Career College's Administration of the Higher Education Act, Title IV Programs.

Published by the Department of Education, Office of Inspector General on 2002-03-18.

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

                                          OFFICE OF INSPECTOR GENERAL

                                                501 I Street, Room 9-200
                                             Sacramento, California 95814
                                         Central Office Number: (916) 930-2388
                                             FAX Number: (916) 930-2390

                                                       March 18, 2002


Mr. Tim O’Neil
Campus Director
Glendale Career College
1015 Grandview Avenue
Glendale, California 91201

Dear Mr. O’Neil:

This is the Office of Inspector General’s Final Audit Report, entitled Glendale Career
College’s Administration of the Higher Education Act, Title IV Programs. The purpose of the
audit was to determine whether Glendale Career College (GCC) met eligibility requirements and
administered the Title IV programs in compliance with the Higher Education Act of 1965, as
amended (HEA).

Our review covered the institution’s fiscal year ended December 31, 2000. We found that GCC
lacked adequate procedures for ensuring compliance with the HEA’s ability-to-benefit provision.
GCC has revised its procedures to address the identified weaknesses, but did not agree with our
recommendations on the return of Title IV funds.

                                                 AUDIT RESULTS
GCC lacked adequate procedures for ensuring compliance with the ability-to-benefit provision of
the HEA. Also, as discussed in the OTHER MATTERS section of the report, GCC did not pay
Title IV refunds timely during our audit period, but had subsequently implemented effective
corrective action. We concluded that GCC had adequate management controls over other
aspects of its administration of the Title IV programs. We also concluded that GCC met
institutional eligibility and program eligibility requirements.

          Our mission is to promote the efficiency, effectiveness, and integrity of the Department’s programs and operations
ED-OIG/A09-B0017                                                                       Page 2 of 11

FINDING – GCC Lacked Adequate Procedures for Ensuring Compliance with the
          HEA’s Ability-to-Benefit Provision

Section 484(d) of the HEA states—

       In order for a student who does not have a certificate of graduation from a school
       providing secondary education, or the recognized equivalent of such certificate, to
       be eligible for any [Title IV program] assistance . . . [t]he student shall take an
       independently administered examination and shall achieve a score, specified by
       the Secretary, demonstrating that such student can benefit from the education or
       training being offered. Such examination shall be approved by the Secretary on
       the basis of compliance with such standards for development, administration, and
       scoring as the Secretary may prescribe in regulations.

GCC uses the Wonderlic Basic Skills Test (WBST) to meet this requirement. Prior to
July 31, 2000, GCC required all applicants to pass the WBST. After that date, GCC required
only applicants without high school diplomas/GEDs and applicants planning to enroll in the
institution’s licensed vocational nurse program to pass the WBST.

To accomplish our objective, we compared WBST publisher’s records with data in the National
Student Loan Data System (NSLDS) for the period July 1, 1997, through November 12, 2000.
We also compared the institution’s WBST data to NSLDS for the period January 1 through
July 18, 2001. To evaluate GCC’s procedures for ensuring compliance with the ability-to-
benefit provision, we reviewed the institution’s records for three groups of students who received
Title IV funds.
     A sample of 50 students of the 871 students who were identified from the WBST
     publisher’s records as taking the WBST once between July 1997 and November 2000 and
     failing the test. (Group A)

      The 31 students for whom the WBST publisher’s records showed that the students retook
     the same version of the test between July 1997 and November 2000. (Group B)

     The 16 students identified from the institution’s records who failed the WBST at least once
     during the period January 1 through July 18, 2001. (Group C)
Our review found that GCC did not have procedures in place to ensure that (1) students who
previously took the ability-to-benefit test were given an alternative version of the test, and
(2) conflicting information on a student’s high school diploma/GED status was resolved. The
following table shows the results of our review for each group.
ED-OIG/A09-B0017                                                                            Page 3 of 11

              Summary of Exception Identified From Review of School Records
                                               School Records Show           School Records Show
                                               Student Did Not Have       Conflicting Information on
                           School Records
                                                    High School             Whether Student Had
               Total                               Diploma/GED            High School Diploma/GED
                            Student Had
              Reviewed                          Retook                     Retook
                            High School                     Did Not
                                                Same                        Same        Did Not Pass
                           Diploma/GED                       Pass
                                                WBST                       WBST            WBST
                                               Version                    Version
Group A           50              43             N/A          —              N/A             7
Group B           31              21               5              —           5              —
Group C           16              12               4              —           —              —
                                                   9              —           5               7
                                                       9 Exceptions               12 Exceptions

Students Retook Same Version of Test. The test publisher has two versions of the WBST test.
Our review of school records identified 14 students who improperly retook the same version of
the test.1

Federal regulations state—

       An institution may use the results of an approved test to determine a student’s
       eligibility to receive Title IV, HEA programs funds if the test was independently
       administered and properly administered.
       34 C.F.R. § 668.151(a)(2)

       The Secretary considers that a test is properly administered if the test
       administrator . . . [a]dministers the test in accordance with instructions provided
       by the test publisher, and in a manner that ensures the integrity and security of the
       test . . . .
       34 C.F.R. § 668.151(d)(2)

       An institution shall maintain a record for each student who took a test under this
       subpart of . . .[t]he test taken by the student . . . .
       34 C.F.R. § 668.151(g)(1)

  As noted in the table, school records showed that 9 of the 14 students did not have a high school
diploma/GED. For the other 5 students, school records contained conflicting information on whether the
student had a high school diploma/GED.
ED-OIG/A09-B0017                                                                           Page 4 of 11

       An institution shall be liable for the Title IV, HEA program funds disbursed to a
       student whose eligibility is determined under this subpart only if the institution—
           (a) Used a test administrator who was not independent of the institution at the
               time the test was given;
           (b) Compromises the testing process in any way; or
           (c) Is unable to document that the student received a passing score on an
               approved test.
       34 C.F.R. § 668.154

The WBST User Manual states the rules for retesting on the same form:

       [Y]ou may retest the applicant again on either form in accordance with the
       following rules:

       1. The applicant must have already taken both forms of the WBST once.
       2. The applicant may be retested on the same test form once, and only once.
       3. The applicant must NOT have been told in advance that there would be an
          opportunity to take the same test form again.
       4. The applicant may be retested on the same form only if at least 60 days have
          passed since he or she was initially tested on that form.

The Manual also states that the administrator must maintain a record of the test versions
administered to an applicant and the dates administered.

During our review period, GCC relied on the independent test administrator to determine
whether the applicant had previously taken the WBST and the appropriate test version to be
administered. After we advised GCC officials that students had been improperly given the same
version of the WBST, GCC revised its own ability-to-benefit procedures. Effective
September 25, 2001, GCC required staff to ascertain whether the applicant had previously taken
the WBST test and to provide the independent test administrator with the prior test

Conflicting Information on High School Diploma/GED. Our review of the school records
identified 12 students whose school application and Free Application for Federal Student Aid
(FAFSA) contained conflicting information on whether the student had a high school
diploma/GED. The 12 students either did not pass the WBST or improperly retook the same
version of the test. Due to the conflicting information, we are uncertain as to whether the
students needed to pass the WBST to be eligible for Title IV funds.

Federal regulations state that institutions must develop and apply—

       . . . an adequate system to identify and resolve discrepancies in the information
       that the institution receives from different sources with respect to a student’s
       application for financial aid under Title IV, HEA programs.
       34 C.F.R. § 668.16(f)
ED-OIG/A09-B0017                                                                         Page 5 of 11

After we advised GCC officials of the discrepancies, the institution’s Financial Services Director
issued a memorandum instructing financial aid counselors to review the admissions application
and financial aid documents for conflicting information during the intake process. The
memorandum provided an example of conflicting information regarding a high school diploma
and advised the financial aid counselors that such information must be resolved before the intake
process can continue.


We recommend that the Chief Operating Officer for Federal Student Aid require Glendale
Career College to—

1.1    Instruct its independent public accountant (IPA) to assess, as part of the institution’s next
       annual audit, the effectiveness of the institution’s newly implemented procedures for
       ensuring that conflicting information is resolved and students retaking the WBST are
       given an alternative version of the test.

1.2    Return the $44,049 of Title IV funds disbursed to the nine students without high school
       diplomas/GEDs who improperly retook the same version of the WBST.

1.3    Resolve conflicting information regarding the high school diploma/GED for the
       12 students identified in our review who received Title IV funds but either failed the
       WBST or retook the same version of the test. If the institution finds that the students did
       not have a high school diploma/GED or the institution is unable to resolve the conflicting
       information, GCC must return the Title IV funds disbursed to the students. The
       12 students received a total of $65,200 in Title IV funds.

GCC’s Comments

In its response to the draft report, GCC stated that its IPA had tested the procedures implemented
during our audit and found no instances of non-compliance. GCC stated that the IPA’s
conclusions would be included in the institution’s financial aid audit for calendar year 2001.

In a footnote to its comments, GCC stated that the requirement on use of an alternative test form
is not as absolute as presented in the draft report. GCC cited the WBST User Manual statement,
“Ideally, retests should be conducted on an alternative test form.” From this statement, GCC
concluded “failure to use an alternative test form should not necessarily invalidate the test

GCC did not agree with our recommendations on the return of Title IV funds. GCC stated that it
should not be held liable for errors in the administration of the WBST. GCC stated that the
principal responsibility for preparing, administering, scoring, and reviewing the quality of an
ability-to-benefit examination rests squarely with the publisher and the independent test
ED-OIG/A09-B0017                                                                           Page 6 of 11

administrator. GCC cited the Secretary’s statement in the preamble to the regulations published
in the Federal Register (FR) on December 1, 1995:

       [T]he Secretary will not hold institutions financially responsible if they award
       Title IV, HEA Program funds to an [sic] ability-to-benefit students who present
       evidence that they passed approved tests as long as the institutions did not
       interfere with the independence of the testing process and were not involved in
       the testing process.
       60 FR 61836

GCC also cited 34 C.F.R. § 668.154, which lists the instances where an institution would be held
liable for Title IV funds disbursed to a student whose eligibility is determined using an
ability-to-benefit test.

GCC questioned the appropriateness of assessing a liability for students who graduated, since
these students have demonstrated their ability to benefit from the education and training being
offered. GCC stated that it has been the consistent policy of the Department not to assess
liability for ability-to-benefit issues when the student, in fact, graduated.

In addition, in a footnote to its comments, GCC stated that if the Department assessed any
liability with respect to the issues raised in the report, the liability for Federal Family Education
Loan funds cannot exceed the amount calculated based on the Department’s Actual Loss

GCC provided information on two students who we cited as having conflicting information on
their school applications and FAFSA. GCC’s comments on the draft report are provided as an
attachment to the report.

OIG Response

The statement quoted by GCC from the “Retesting” section of the WBST User Manual does not
negate the requirement to administer tests in accordance with the test publisher’s instructions.
The “Retesting” section contains the specific rules to be followed when retesting an applicant on
the same form. Of the 14 students cited in the report, 13 students had not taken the alternative
version of the WBST. The remaining student took both versions of the WBST, but took the
same version four separate times until she eventually passed on that version. We revised the
presentation of the Manual requirement in the report to provide more detail on the retesting rules.

We have not changed our position regarding the recommended liability. In accordance with
34 C.F.R. § 668.151(a)(2), an ATB test may only be used to determine a student’s eligibility for
Title IV, HEA funds if the test was independently administered and properly administered.
ED-OIG/A09-B0017                                                                        Page 7 of 11

In addition, 34 C.F.R. § 668.151 (g) states—

       An institution shall maintain a record for each student who took a test under this
       subpart of—
          (1) The test taken by the student;
          (2) The date of the test; and
          (3) The student’s scores as reported by the test publisher, assessment center,
          or State.

GCC had, or should have had, adequate information in its student files to determine that the
students’ tests had not been properly administered. Therefore, GCC was required to determine
that the students in question were ineligible to receive Title IV funds based on those tests. Under
its program participation agreement, GCC, not the test publisher or the independent test
administrator, is responsible for identifying eligible students.

Under 34 C.F.R. § 668.154, an institution is liable for funds disbursed to a student if the
institution is “unable to document that the student received a passing score on an approved test.”
The WBST was approved for use in re-testing in accordance with the publisher’s instructions.
Unless the proper re-test form was used, or the required 60-day time period had passed, a student
did not receive a passing score on a test approved by the Department. Since GCC is required by
34 C.F.R. § 668.151(g) to maintain records documenting each student test, both pass and fail,
GCC’s records should have shown that the students did not take the approved version of the test
that was applicable to their circumstances. Hence, our position does not conflict with the
Secretary’s statement in the Federal Register cited by GCC, since the Secretary’s statement
concerning financial responsibility is limited to students who “present evidence that they passed
approved tests.”

We made no changes in the recommendations in regards to GCC’s comments on students who
have graduated and on the application of the Department’s Actual Loss Formula. During the
audit resolution process, the appropriate Department officials will determine any monetary
liability owed by GCC with respect to this finding.

The information provided by GCC resolved the two students’ conflicting information on high
school diploma/GED status. We revised the report and the amount of returned funds in
Recommendation 1.3, accordingly.

                                    OTHER MATTERS
The IPA reported in the institution’s Title IV compliance audit report for fiscal year ending
December 31, 2000, that GCC did not pay refunds timely for Title IV programs. As part of the
resolution of the refund finding, GCC provided ED with a letter of credit in the amount of
$80,421. In June 2001, GCC implemented its corrective action plan, which had in-house staff
calculate the refunds using ED-provided software rather than having this function performed by
its school servicer. GCC also began using electronic fund transfers to make the payments. Our
review of the 32 refunds paid by GCC from July 16, 2001, through September 15, 2001, found
that the refunds were paid within the 30-day required timeframe.
ED-OIG/A09-B0017                                                                      Page 8 of 11

GCC is a proprietary institution under the ownership of Landmark Education Services, Inc.
GCC has a main campus in Glendale, California, and an auxiliary/satellite campus located at Tri-
City Medical Center, Oceanside, California. GCC also has a branch campus called Nevada
Career Institute in Las Vegas, Nevada. GCC offers educational programs leading to a diploma
certificate in Central Service Technology, Computerized Office Assisting, Licensed Vocational
Nursing, Massage Therapy, Medical Assisting, Medical/Dental Office Management and Surgical
Technology. GCC is accredited by the Accrediting Council for Continuing Education and
Training. Global Financial Aid Services, a third-party servicer, processes Title IV transactions
for the institution, except for refunds which GCC began performing in-house in June 2001.

During the fiscal year ended December 31, 2000, GCC received about $2 million in Pell Grants
and $312,000 in Federal Supplemental Educational Opportunity Grants, and GCC students were
approved for about $5.5 million in Federal Family Education Loan funds. The most recent ED-
published (1999) Cohort Default Rate for GCC was 14.7 percent.

The objective of the audit was to determine if GCC met eligibility requirements and administered
the Title IV, HEA programs in compliance with the HEA. Our review covered the institution’s
fiscal year ended December 31, 2000. As described later in this section, our tests of compliance
with ability-to-benefit and return of funds (refund) provisions include periods prior and
subsequent to fiscal year 2000.

To accomplish our objective, we reviewed applicable Title IV regulations, the WBST user guide
and GCC’s written guidance. We interviewed GCC managers and staff responsible for
admissions, registration, student financial aid, business transactions, and placement to gain an
understanding of GCC’s policies and procedures. We also interviewed the independent test
administrator under contract with GCC who administered the ability-to-benefit test during our
site visits. We reviewed GCC’s audited financial statements and Title IV compliance audit
reports for fiscal years ended December 31, 1999 and 2000.

We relied on computer-processed data extracted by GCC staff from the institution’s CLASS
database to review the institution’s compliance with the 90/10 revenue percentage, student
eligibility, Title IV disbursement, and return of funds requirements. We reviewed records
selected from the following three groups of extracted files:
ED-OIG/A09-B0017                                                                                     Page 9 of 11

                                   Universes and Records Reviewed
                                    From GCC’s Class Database
                                                                                        No. of       Records
    Requirement Tested                               Categorya
                                                                                       Records       Reviewed
                                   Title IV funds received                              7,149           15
                                   Cash payments received during period
                                                                                         574             10
                                   1/1/00 through 3/31/00
90/10 Revenue Percentage           Cash payments received during period
                                                                                        2,026            20
                                   4/1/00 through 12/21/00
                                   Job Training Partnership Act payments
                                                                                         166             15
Student Eligibility and
                                   Students enrolled                                     729             15
Title IV Disbursements
                                   Students with refunds paid during the
                                                                                         484             50
                                   period 1/1/00 through 7/15/01
Timely Return of Funds
                                   Students with refunds paid during the
                                                                                          32             32
                                   period 7/16/01 through 9/15/01
  The period covered was January 1, 2000, through December 31, 2000, unless otherwise specified. The reviewed
     records were randomly selected from the universe, except for where we reviewed all records in the universe.
  Due to a system change in April 2000, GCC provided two separate files for cash payments received.

To evaluate the reliability of GCC’s computer-processed data used to review the 90/10 revenue
percentage, we traced the summary amounts by transaction codes to the worksheet used by GCC
in its monthly tracking of the 90/10 revenue percentage. For reviewed records, we confirmed
information contained in selected data fields with other school records. During our limited
testing, nothing we reviewed caused us to doubt the reliability of the data.

We also reviewed student records for three universes of students who took the WBST and
received Title IV funds. Page two of this report contains information on each universe and the
number reviewed.

We conducted fieldwork at GCC’s main campus during the months of June through September
2001. We held our exit conference with GCC on November 2, 2001. Our audit was performed
in accordance with generally accepted government auditing standards appropriate to the scope of
the review described above.

As part of our review, we assessed the system of management controls, policies, procedures, and
practices applicable to GCC’s administration and compliance requirements of the Title IV
programs. Our assessment was used to determine whether GCC’s policies and procedures
provided a reasonable level of assurance that the institution and its students met selected Title IV
ED-OIG/A09-B0017                                                                          Page 10 of 11

For the purpose of this report, we categorized the significant controls related to the Title IV
programs as follows:
      Oversight of program eligibility
      Monitoring of institutional eligibility and financial responsibility requirements
      Student eligibility determinations
      Ability-to-benefit testing procedures
      Award and disbursement of Title IV funds
      Refunds/return of Title IV funds
Because of inherent limitations, a study and evaluation made for the limited purpose described
above would not necessarily disclose all material weaknesses in the management controls.
However, our assessment disclosed management control weaknesses in the procedures for
determining eligibility of students who provided conflicting information on high school
diploma/GED and the testing procedures used in administering the ED-approved ability-to-
benefit test. These weaknesses are fully discussed in the AUDIT RESULTS section of this

                             ADMINISTRATIVE MATTERS
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.
Determination of corrective action to be taken will be made by the appropriate Department of
Education officials.

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 ED official, who will
consider them before taking final action on the audit:

                               Mr. Greg Woods
                               Chief Operating Officer
                               Federal Student Aid
                               Union Center Plaza Building, Room 112G1
                               830 1st Street, NE
                               Washington, D.C. 20202-5402

Office of Management and Budget Circular A-50 directs Federal agencies to expedite the
resolution of audits by initiating timely action on the findings and recommendations contained
therein. Therefore, receipt of your comments within 30 days would be greatly appreciated.

GCC’s Comments on the Draft Report
                                 REPORT DISTRIBUTION LIST
                            CONTROL NO. ED-OIG/A09-B0017

Auditee                                              ED Action Official

Mr. Tim O’Neil                                       Mr. Greg Woods
Campus Director                                      Chief Operating Officer
Glendale Career College                              Federal Student Aid
1015 Grandview Avenue
Glendale, California 91201

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