University of La Verne's Compliance with the Higher Education Act's Prohibition on Incentive Payments Based on Success in Securing Enrollments.

Published by the Department of Education, Office of Inspector General on 2002-06-21.

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

                                     UNfTED STATES DEPARTMENT OF EDUCATION

                                                                                   JUN 2 1 2002

TO: 	          Greg Woods
               Chief Operating Officer
                         uem Aid

               Ass.istant In~pector General for 

                  Audit Services 

           Un.iversity of La Veme's Compliance with the Higher Educatio1l .4et's
           Prohibitioll 011 Incelltive Payments Based Ql1 Success ill Securing Enrollments

Attached is our subject repolt presenti ng our findings Hnd recommendations resulting from our
audit of the University of La Veme.

In accordance Wilh the Department's Audit Resolution Directive, you have been designated as
the action official responsible for the resolution of the findings and recommcndattonsin this

If you have tmy questions, please contact Gloria Pilotli. Regional Inspector General for Audit,
Sacramento. at (916) 930-2399.

Please refer to the above control number in all correspondence relating 10 this report.


cc: 	   James Castrcss, (~asc Director, Case Management and Oversight. FSA
        Faye Hams, Audit Liaison Officer. PSA

                                                   ·mD MARYLAND IW~ .• S. W. WASmNGTON. D.C. 20Zr):.!·151 () 

               (}:;r rn;ssjon i~   tIl   t!r!.r.-t....:fe equal !l~C'1?:;5 ta· ert:~("£Jri.:)f1 ftnrl to jJr{)n!rJ~f! edlli"':atlona~ cxC'er1e-nCl~ Otfl)IJ~~hotit the Na1l.n"p_ 


                                            OFl'lC!;   or INSP!CC'KlR OENERII.!.

                                                    JUN 11 1001                                       ED·OIQIAQ9-C00Q4
Mr. Phi l ip Hawkey
E ~crutivc Vice President
University ofb Verne
19503'" Street
La Verne, Cal ifornia 91750

Dem Mr. Hawkey:

This is the Office of Inspector General' s Fi na l Audit R~purt. ent it led University of La Verne's
CompJi.mcc wilh the Higher Education Act's Prohibition on Incenlive Payme nt s Based on
Success in Securing Enrol l menlS. We limi led o ur review to dctcnnini ng whether the institution
wmplied with the Higher Education Act (HEA) and applicable regu lations pertaining to the
pruhi bilion against IIIcemi vc p.lymcnts based o n sliccess in securing enrollme nts.

We foun d that the Un iversity of La Verne (UL V) violated the s tatutory prOhibition when it paid
bonuses to marketing staff at its School of Conti nuing Educatio n (SCE) for enrollments in
academ ic year 1999-2000. ULV·s Merit Pay P lan for academ ic year 2000-200 1 ad hered to the
strotutory prohibition. After academic year 2000-2001. ULV disconti nued using any incentive
and merit pay plans for its mnr keti ng staff. ULV concurred with our finding that its Marketing
Incentive PI ~n for academic year 1999-2000 violated the prohibition on incentive payments. but
ULV disagreed with our recommendation that it return Title IV funds. We revised the
rcrommended recovery and other infonnation in the report to reflect the adjusted student counts
and Title JV fl'nds provided in ULV·s response to the dmft report.

UL V·s Marketi n!; Incentive P lan for academic year 1999-2000 violated the HEA provision
e\pre~sl y prohibiti ng bonus payments based directly or in directly on success in securing
enrollment.>. Section 487(3) of the HE" stmes-

       In order to be an eligible institluion for the pUfJlO$es of any progr~m authorized
       under this title . an instituti on ... shall . . . enl~r into a program participation
       agreement with the Secremry. The ag reement sh all con di tion the ini ti al and
       continuing eli gibi li t y of an ins1itution to particip~te in n program upon compliance
       with the following requin:ments:

            (20) The mstitution will nO! provide ~ny ,",ommi,sion. bonus, or other
       meentive PJymcnt based din."Ct ly or indirectly on success in sec uring cnrollmems
       or financial ~id to any persons or entities engage d in any stu dent recrui ting or
       "dm,&,ion activities or in making decisions regardmg the award of student
        Financial IlSsislancc ....
                                 ..", 'IAH,",","D   _v~   .
                                                          $ ",   "·MH'S(;T<l~ .   D.C.:102O:l ,! '0
130-OIGIA09·COOJ.l 	                                                                        Page 2 of9

The regul~tions m 34 C.F.R. § 668.14(b){22) codify the SWtutory prohibition on incentive
pJyments bJscd on securing enrollmen ts.

        By en tenng in to a progrJm pMlicipmion agreemen t, an ;n,tilution agrees thm .. .
        [I JI will not provide. nor contr.lct with an y entity that provides. any commission.
        bonus. or other incentive payment based dirC\:11y or indirectly On .•uceess in
        securing ~nrollmcnts or firmncial aid to any persons or entities engaged III any
        stud~nt recruiting or admission activiTies or in making decIsions regarding the
        award ing of student financial assi stance . ...

The Marketing In<:<:nti vc Plan for academic yeal 1999-2000 established a bonus pool ba.~ed on
the revenue gained from SCE enrollments e~eeeding a base enrollment quota. Under thc plan.
the SCE marketlllg d'leClOrs who e~eeeded thei r base quotJ would receive three pereent of the
bonus pool . Other SCE st~ff induded in the Marketing Incentive Plan would receive a bonus
mnging from 0.3 10 0.8 perccnt of the bonus pool. The SCE stu ff incl uded the ac~demie
~dvisors. campus directors, director of marketing and communicat ions. director of corporate
contaCTS, assiswnt dean of marketing, and business m3nJger. ULV·s payroll records for July
2000 showed bonuses totaling $133,954 .

Section 487(a} of the I·LEA proh.ibits bonus payments based directly or indirectl y on success in
securing enrollments to persons engaged in ,my student recruiting or admissions activities.
UL V paid bonuses based on success in securing enrollments to SCE staff included in the
Marketing lnccntive Plan. Educational programs offered through SCE arc cl igiblc progmms for
Titl e TV purposes.

['"or violating Section 487(a) of the IlEA. UL V is liable for Title IV funds disbursed to the
studcnts whosc enrollmenTS were included in the bonus c~ l culation . ULV idenlified
1.116 students who began their enroJlmcnt in SeE programs in academic year 1999-2000. of
which 428 students received Title IV funds . The 428 students received over $6.9 million in TiTle
IV funds from July I. 199<). through OC\:cmbcr 4. 2001. This amount consisted of $395,730 in
FeJer~1 Pell Gr;lnt (Pell) and $6.528.9S1 in Fe de m) Family Education,tj Lo~n (FFEL) funds.

Recommendn li ons

We recommend that the Ch,cf Opt:rating Officer for Federal Student Aid require UL V to-­

1.1 	   Return to lenders Ihe FFEL funds disbursed to students who o..gan their enrollment in
        SCE prosrdms in academic year 1999·2000. Also, repay the Departmen t for interest and
        special allowanee costs incurred on Federnll y subsidized loans. The students identifIed
        by UL V received 56528.981 in FFEL funds from Ju ly 1, 1999. through
        December '!. 200 1.

1.2 	   Return to the Depattl11Gnt thG Pell funds disbursed to Sllldcnt~ who begnn their enroll men!
        in SCE progr.lms in academic year 1999-2000. The students idcTltified by UL V rcceived
        $395,730 in Pel! funds from July 1. 1999. through Decel11ber4. 2001.
ED·OIGIA09-COO(J.j                                                                         Page 3 of9

Audilec Cu mnIcIlts

UL V concurred with our find ing that its Marketing Incentive Plan for ~cadcmic year! 999-2000
violated the prohibitton on incenti ve payments. but it disagreed with thc reported number of SeE
s!~rf whose bonuses were in violation of the prohibition. ULV described the "'sponsibilities of
the 15 s t~ff who receivcd bonuses and concluded that II of the IS stuff w~rc not engaged in
studcm recruiting or admission activitics. ULV requested thatlhe OIG rCV1se the repan to reneet
that the on ly bonuscs that violated the prohibi tion On incent ive payments were thosc paid to the
three indi vidu~ls who were direct ly involved in recruiting and the individual who supen'ised and
tr:lIn~d the recnll1~rs. These four individuals rcccived bonuses totaling $70.409

UI. V disag",ed with the method used by OIG to calcu late the recommended recovery. UL V
stated lha! me thod ovefbtated the recommended recovery becausc the three recruiters did not
recruit many of the students whose Title IV funds we re included in the recommended l"C<:ovcry.
ULV also stated that. since the bonuses were paid only if rcv~nue increased, the recommended
recovery should be based on the increase in tui tion revenue from ! 998-1999 to I 999-2000 rmher
th~n tile Title IV funds received by all students who starte d in 1999-2000.

VI,V presented severn l fnctors that. in its opinion. should be t~ kcn into eonsidermion when
detennining the amount of Title IV funds 10 be returned to the Departmen t. ULV Slated that the
Marketing Incentive Plan had no adverse. harmful effect on students or the institution. UL V ~Iso
stated tllat mitigating factors ami tile mstitution ·s performance record shou ld be considered in
determining tile r<'covcry :tmount. UL V requested th~t the O IG omit the recommended recm'cry
from the final report. UL V stutud lhat. if the OIG must inc lude a recommended recovery, the
amou nt should be limited to an administrntivc fine or adjusted using the Department's Estimated
Loss FornlUla.

UL V provided a reVised cou nt of tile number of students wllo be gan their enrollment in academic
year 1999-2000.

OIG Hcsponsc

Our conclusion regardi ng the bonuses paid to the II SeE swff rem~ins unch~nged The
prohibition on incentive payments applie.1 to bonuses ba""d di rectly Or indirectly On succe'iS in
securing enrollments to an y persons eng~gcd in an y student recruiting Or admission aeti vities.
The bonus amounts paid to the II staff were based on earned additi on al revenue that was
calculated uSIng enrollment numbers. The Marketing Incentive Plan for academic year
 1999-2000 provided Ju~tification s for including 10 of the II staff in the plan. The justificmions
explained each swffs involvement in bringi ng students to SeE. Attachment I lists the
jtlsti fieatton . 1><."'''$ amount. and bonus calculmion for eaeh of the 11 swff.

The method used 10 calculate the recommended recovery appropriately reflects the Title IV
funds impacted by violation of the prohibition 011 incentive payments. The revenue method
proposed by UL V would nO! reflect the Title JV funds received by all student s who were
recruited or enrolled using incemi ve payments ba~ed on success in securi ng enrollments.

We m~dI: no th~n ges in tile recommendations in regards to UL V comments all hann. mitigating
r""IOrs. performance record, admimslr:,tive finc 'md {he E<tllnatcd Loss Formu la. Dunng {he
ED -OIGIA()I)-CIOI4                                                                         Pag~   4 of9

audit resolutIOn process. the app rQpnatc Department officials 10,11 detennine the monetary
liahi lity owed by UL V With respec!!O this fi ndi ng.

We revised the recommended recovery and oth er infonnation in the report!O reficc! the ~djusted
Ilumberof students who began theirenrollmcnl in SCE program s in academic year 1999·2000
an d the corresponding adjusted Title [V fund amounts thai were provided in UI. V'S response to
the dn,n repon.

UL V is an in depcn dem. non -' L'Ctari an, and no n-profit education institution that was founded in
1891 by members of the Chureh of the Brethren. The institution offers bache lor, master. and
doctom[ degree progmms from its College of Arts and Sciences. the Schooll3usiness and G[obal
Studies. lhe School of Education and Org~ni7.ati ona[ L"'adership. the College of Law, the School
of Organizational Management. and the School of Continuing Education. UL V prov i d~s
instruction at its main campus locmed m La Verne, California, aHd off-campus locations. A t
present. UL V has regional off-campus sites at the foll owing locations in Cali fornia: San Luis
Obispo. Oxnard. Bakersfield. Burbank, Garden Grove. and Rancho Cucamonga. UL V is
accredited by the Accredi ting Commission for Senior Collcges ~nd Univcrsities of the Western
Association of Schools and Coll eges.

ULV records show that the i n~ti lUtion disbursed the following amounts of Tit Ie [V funds during
the pcriod Ju ly [. 1999. to June 30. 2001-

               Perkins Loan                                                   S 907,001
               Fe cler•.t! Supp[emema[ Education al Opportunity Grants          425,745
               Fe clem[ Wmk Study                                               7 16.1)94
               Pel!                                                           4,)[6,882
               FFEL                                                          70,<)34,119
                                                                            $77,299,84 1
The 1999 Cohon Default Rate (most recent Depanment's published flIte) for ULV was
2.9 percent.

The objective of our audit was to determi ne whether ULV complied with the HEA and
applicable regulations penaining to the prohibition against the use of incentive payments based
on success in securing enrollments. Our review covered UL V's M:lJ"kcting Incentive Plan for
academic year 1999-2000. its Merit Pay Plan for academic year 2000·2001. and payments to
mnrketing staff for the period luly I, 1999. through June 30. 2001.

To accomplish our objective. we reviewed applicable HEA provisions and Title TV regulations.
We reviewed UL V'S accreditation documents. state licensure, and Tit[~ IV program panicipalion
agreement. We interviewed ULV administrators and sta ff responsible for recruiting students and
administeri ng the incentive plans. We reviewed ineenllve plans and staff perfonnance
eva[uatinns. We reviewe d the Repon on Audited Financial Statements and Federal Awards
ED-OIG/ A09-COOQ.l                                                                           !'age 5 of 9

Audit R~por1s fOT the fisc<ll ycar ended June 30, 2000, prepJrcli by ULV's independent public
account,mt ,

We relied on in fonnmion extraetcll by UL V from its Rmner System datubase to identify the
swdelll5 whose enrollments WEre inc luded in the bonus calcu lation . We compared the number of
students included in the bon u$ calc ulation to the nu mber of students identifi ed from the databa.~c .
We relied on infonnation .::ontained on the Department's National Student Loan Data System
(NSLDS) to iden tify th.:: Tit le IV fund. dIsbursed 10 the students. We compared Ti tle IV funds
identified from NSLDS to infonnation ex tracted by UL V from its Banner SyslC m d<lt<lbasc. We
relied on in fornlation contained in UL V's p<ly rCglstern 10 identify payments to SCE m;lrkeling
smff. We traced payments that appeared to be other than regul ar salary payments to supponi ng
payroll documentation. Based on these te>!S, we concluded that the data used were su fficiently
reliable for meeting our objective.

We conducted fieldwork at UL V's main campus during the period Oc tober 30 through
November 9. 2001. We held OUT exit conference with ULV offic ial s on January 10,2002. We
issued a draft report on March 11.2002. ULV responded to ourdrafl report on April 26, 2002.
Our audi t was perfonned in accordance with generally ac<:cpted government auditing standards
appropriate to the scope of the rcvi~w described above.


As pan of [Jur audit. we gained an umler:;tanding of UL V's procedures used [0 calculmc <ltld pay
bonuses to SCE marketing ~torf. We detennined that an :Issessmcnt of the tnnnagcment control
structure covering these procedures was not necessary to meet our audit objective ~nd we
pcrfonned no such assessment.

Due tll inherent limitatIons. ~ study an d evaluation made for the limited purpose descnbed above
wou ld not netessarily disclose ~II tn<lterial weaknesses. However. we found thai UL V viol,[{cd
the statut0ry pf<)hibition agai n~t the usc of incent; ve payments based on succes~ tn i\ecuring
enrollm~nK The AUD IT RESULTS sectIOn of this report fully diseusses Ih,s finding.
ED-OIG/AU9-C()()04                                                                       Page 6 of9

                               ADJ\iIINISTRATIVE MATTERS 

Statements that managerial practices need improvements, a...-: well as other conclusions and
recommendations in this report represent the opinions of the Office Qfblspector General.
Delennination of corrective action to be taken will be made by the appropriate Department of
Education officials.

If you have any additional comments or infonnation that you believe may have a betuing on the
resolution of this audit, you should send them directly to the following ED official, who will
consider them before taking tinal action on the audit:

                                Mr. Greg Woods
                         .".    ChiefOperating Officer
                                Feder.~l Student
                                Union Center Plaza Building, Room 11201
                                830 1SI Street, NE
                                Washington, D.C.     20202~5402

Office of Nlanagement and Budget Circular A-50 directs Federal agencies to ex.pedite the
resolution ofaudits by initiating timely action on the findings and recommendations conmined
therein. Therefore, receipt of your comments ''lithin 30 days would   begreatly appreciated.

In accordance with the Freedom of Information ACI (5 U;S.C § 552), reports issued by the
Office oflnspector General are made available, jf requested, to members of the press and general
public to the extent lnfonnation contained therein is not subject to exemptions under the Act.

If you have any questions. please call Ms. Gloria Pilotti at (916) 930-2399, Please refer to the
con[I'ol number in aU conesponciencerehHed to this report

                                               Assistant Inspector General for
                                                     Audit Services

     ED-alGIA (}<)-COOQ.I                                                                              Page 70f9

                                                                                               Attachment 1
                                                                                                Page I of2
                                            l\hrketing Inccnth'c Plan
                                            Academic Year 1999-2UOO

      Slnrr Position
   Per ULV's R~~I>Onse           i\larkclinll Plan J",liIlc"liun          Bonus              Bonus C alc"tulion

                                                                        $5 .387 for
                                A5~ist •.as needed. with_II                           0. 5% of ~amod additional
     AC;ldcmic Advisor                                                 IWO swff and
          (3 <laff)
                                pro'peclS brought in lo lheir                         Ed ucation i'rogram rc,·c"nc·
                                camp us.                                              ($1.077.300)
                                                                        one staff'
                                Assi~t s.as needed. witl1 ,I I
     Academic Adv i.or                                                                0.5% of c~med additional
         (3 staff)
                                pWSpt:CIS brought imo their            $4.333 c.ch
                                campus .                                              CAPA rc"cnuc' (5866.621)

                                A"i>ls, as needed, with all                           0.5% of earned nddition.1
Assistant Di"",!<)r(lfTe'chcr
                                pfOSpt:cts broughl into their            $5.387       Educulion Program reven~
    Education i'rogr"nIS
                                ".mpus.                                               ($1.077,300)

   Depanmenta] ll us;ocss
                                No j USI; licalion provided.                          0.3% of earned additional
    Manlj;cr/Direclor of
    Administf'.ltion a,1d
                                Individual was added!<) the              S3.867       CAPA ~nd non-CAPA" revenue
                                plan m year-end.                                      ($866.621 + S422.4oo)

                                Prm·ide. additional
Associate Dca!] of Academic
                                moti v~tional management and
     Affairs for Ad ult                                                               0.5% of eamoo addit ional
                                O\'era]] h ~nds on wltl1 all             $4.333
Undergradll:l(e Mai~ C~mpus                                                           CAPA re'1:nue ($866,621)
                                r tUr~~til1g aCli vilies lhat uc:,ur
                                at tileir c;un
                                Comrib ut cs directly to ,ucce",                      $10.312 Bonus -- 0.8% of
                                of each q uO!a-b3<ecl ",-'Cr"iter.                    earned additional CAPA and
                                Makos critical decision, in                           non-CAPA rnem'c ($866.621 +
                                budget control of al l                                $422,400)
Marketing Di""'torlDireclOr
                                ",heni,ing doilar,. " rl oJ i. in
    for Murkctill ~ and                                                 515.699
                                charge of strmegy ~nd
                                dislribution of ~ntire                                S5.387 Bonus ~ 0.5% of e3med
                                ,u\'eni,ing campaign to draw                          additional Education Program
                                pros[lOCli\'e leads to,JI                             revenue l51.077.3OO)
                                regional r~cruite,-,; .

                                                                                      U.~% of eamed additional
M"rkcting Dirc'CtorlDirector    CO"lributcs dil'l:ctly to SUCCeSS
                                                                         $6.445       CAPA ami non-CAPA revenue
  of Corporale Coman,           of e,ch qUOla-ba.ed "",ruiter.
                                                                                      (5866.621 + $.122.400)

     Total Bonus Paid                                                   $63.545
!ill OIGlAOO -CtJlX);l 	                                                               l'ag~   80f9

                                                                                AII:tclunent 1
                                Marketing Inccnti" e Plan
                                Academic Year 1999-200U

No tes:

• Prorntcd for RIne months partkipalion (3/4 ofS5.387).

~ Education Progr~m$ for teachcrcredcmial and OIhereducation-n::!atcd cn:dent ials. Number of
 new $wdcl1ts in e.~ce$S of Education Progrnms base urnes revenue for fiscal year per student
 equll is Education ProSrlIms gained revenue ( 17 I stu dents X 56.300 = $ 1.077,300).

< Campus   Accclcrtued Progr.mlS for Adults, a centrnl eampus program destgned for working
 adull1l_ The original formula for CAPA gained re,'enuc was the number of student fuJllimc
 equivalent 'n e~ce$5 of the CAPA base times umts tllnes cost per unit (309 students X 15 unitS
 X 5315 per umt = SI.460,025). instt:ad of using (hIS amount. SCE used $866.621. the alJlOOn[
 of gamed revenue Itknldied from ils budget n:poned n:venuc. SCE m~nagers concluded that
 the budgeted n:ported revenue more aceur:llcly reneeted the Ct\PA smned revenue.

J 	Nun-CAPA    an: ed ucational progr:lms offered ut SCE's regional campuses. Number of new
 students in excess of non-CAPA base times tuillon equals non·CAPA gained revenue
 (96 sludell1s X $4.400::: $422.400).
ED·OIGlA09·0J00.1                                                                    !':tile? of9

                                                                            AIlachmcnt 2

                             University or La Verne 

                       Commen ts on the Draft Report 

                                       OIG N01'£

             In adherence "ilh lhe Pnvacy Ael of 1974 (5 U.S.c. § 552a). rlmnes of
              UL V Siaff and students hove been redacled from lhe eommenlS. Thi:
              ~ltachmems referred to in UL V'a commi:nL~:lfe avuilable on request.
                     L.   ~   \ '   ~' I ~ L J.j   l   '.   ~
                 .            -----::::-.;,
           -~/    ,~~.,

      Apdl 26, 21HI2

      ~..ts. Glnn,l Pilotli
      Regional Insp~clOr (len~l'ul for Aucii(
      U.S Depm11llCnI orEdUt~atioil
      Office of inspector General
      50) 1 Street, Suite 9<~nO
      Sacmmcillo. CA 95814

      Re: Draft Audit Rt.:por1:Control NUl1lb~r ED-OIGJA09-C0004

      Dear Ms. Pilotli:

      Atrache.d is th¢. respollse Irom the Liftiversily QILu \/cmc to Ihe Draft Audit Report issu~d on
      M3tcb 11,2002. r luge your Ctlilsidcrnrionofthe infomlation we have pTOvlded. thnrdocumcIHs
      our argnmcnt that the liability YOll have described in yourDrnft Audii Report is farinexcess of
      \Vhm is approprime for our circumstam::cs,

      As we have previously coo1Jllunicalc<i the Un h'ersity madc a poor decision ill f;!xp~rimenting
      \\liIll a vcry lill1[[cd bonm;progmm in rhe 1')l)C)-2000 academic year for a handflll of peopk. The
      program was tcm,inilll.!d within several nHmlhs nfits initialioil. as 50011 as \\'c rCfllizcdiL was ott!
      nf l:ompliuncl;;!.

      The linivcrsily made a mls{l.\k~. it invoJ"ed vcry t'cw people and very l'Cw dollars relative to anr
      toWI !iii-i;- The mistake w;iS discovered and con'ected by the University Icmg before the Inspec!or
      Gcn~tal'sOfficcgt)t ill\'olvcd. We fuUy cooperated wllhilicauciilQIsaud pro\'ided all
      lnfulmtltiol1 reques!cd,                                                 ­

      Tile UniVCl'sit}' orb Verne is                             pr~iHd   to hllVC had well respct!terl;,cildelllic pmgrnms for overll 0
      years. and we: would                         ncvc;~r act   in any conscious waytojeopardize our rE!pmatiOlliJlnd our

      Since we did nOlengage in any inlelltionai, prulonged or cgrogiouscondllcl,l request thut y()U
      cOllsidcrclosing tnisuudit without assessing ID1Y repa:r"lcnt liahiliTy nr fine against Ihe
      University (If La Verne.


                                 00\\ . LOHNES & ALBERTSON.                                              ,I." 

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                                                             April 26. 2002

   \Is. Gloria Pdoui 

   R~IQn~11115pcc!or          Generml for Audit 

   Re&iQII IX
   Office of Inspeclor G~crnl
   U.S, Department ofEdU(:a(lon
   501 I Slreet. SUllC 9·200
   Sacramento,California 9SBl4

                Rt:: 	   Unil'ersityof La Verne 

                         ACN: f:l).OIGfA09.COOO4 

   !)car Ms. Pil",!;:

           On b~h(llr oflhe Ullh'crsh~ of [,.II Verne ("Ihe Uni'·ersily"). \\e art' h~",by I't'spondinlO to
   lh.. Office of Inspector Gcncra!'5 dron ~udil rep<ln d.:uecl i\br.::h II. 2002. nmccmins the
   Uni"~rsil}"s compliance ..ilh tIt~ inc.:nti ..e compcnsmion pro"isioD of tltc Higher Education Act
   of 1%5. as amended (the MHEA"'" Audit CQnlIol No. ED·OJG/A09-COOO4 (tlte ~Dl':If\ Audit

            In lhi~ n::sponse. "'C seek IQ present infonnation to COrrecl certain dalll IUld flJl:tua[
   113tC111",,1$ conl:uned In Ihe Dr:lll Audil Repon. and we mlso provide additimtal infmmatiOflto
   sUJlI'On Ihe l1nh'crsi!y's positiQn!ha1 1M fq)(Iyment liabi lity rerommended in the Draft Audit
   Report is exeessive 3J1c1 IIn"-:ltTnZItcd.

                         The AII(ges! Violation is Not lIS Srnoos M Dcscnbl.-d in tlte [)ruO Alldn &@!Hl

            The University ""qUCSts that tlte Onit.. Qf IlISIl"tllr General ("010 "J rmke 5l:wr.sl
   eh3llgt:S to the Drall Audil Report.. relating \Q the employee:s who n:cciwd bonuse:s. 3djustmenlS
   10 the nllmbaQflludcnts n::r~fCl>Co:d. and 3dj....unents III the p,o~ liability amOUnts fllr Pell
   Grunts and Federal f~ll\iJ~ Educ31;on lo:m ("FFEL") pItIgf:1rn. lo.:tns.

                         A	     Emplo'ffiiS Whll R...,,.i,,,,d Rnn\l<C<

            The Drull Audit Repon 11IJit3tCi tIt~t for Ihe 1999·2000 academic year. the )'C3' in
   IIl1eStion, the U""erslly paid $133.954 in IX,"\I'~ in v;ollltion of the incctllivc COlllpcru31ion
                                          == ...                                                                            I
    Ms. Glonil Pilon, 

    April    ~6. ~I)(!~ 

    l'a;.:'" ! 

    pm'isi"n a[1l1~ HEA_ Thi! figur~ repre'i"1l1S b<lnu...,~ p~id 101 15 emplayees in the Un;I'crsilY' S
    Sdlooi af Cominuinll EdueatiolL [0 fllCt, lIlaSI af !hc$C hrlmlScs were not in vialnt ion <If!h~
    inc~ml>"c ,0:l1prnsation proviskln, because !he ~l11ployees wm:- no\ eo\~rcd by !he l:ml!uage of
    th31 provision
I           The IIIC....,ti\·c eompensntion pro\'ision, Scrl10n 4111(I){lO) aflhe HEA.10 U.s.C.
    § I09.!ta)('::O}. prov1<.Ies thai ;m iIlStitution panlClp3\in~ I" Lh!: Tille IV IirundJI ilid progruns
    mJ~- 001 ~prul'ld: 1111) cammission. bonus, Of orner incl'otiw payment bun! directly or ",directly                  I
    on 5UCC~ to secunng enrollments ar financiJlaid la:my p~rsons os- cnlilies engaged in any
    slndenl recruitinllllT admlssian nclivitie5 Cr in mnking dccisicns regarding the IIwurd ofstudent                   I
    Iin3ndaI 3Ssin:lI\l:e. . • . " TI,e Unin:,,;!)' conct<l1:5 tlml it paid ""nuses 10 these 15 individuals
    in 1000. bl!! 11 or those bonllRs Were paid 10 employees who w<)re not ".ngaged in any SludcDl
    recruiting or admiSliicn aetivities_ ~
           Thn..... oflhe I S employees....-oo receil'n! bool.lJCS­
         - Wcr~ dim:tly inl-"II-t'd in re~ruitins and IbIU fall....-ilhin lhe COI'et;age orthe incenu\~
    compCO>.:!tion 1_,                      ""-<15 ~15D in\'Oht<l, in thaI she $Dpcrvised and Ir:lined
    rcrruiuncnl direclOI'$, among numerous other fC$pOlI5ibililies.

               Olher Ihan these fOllr irulividuab, tlle cmplo)""t:lI who   rc~ci "cd   bonu5es wcr<! not engaged
    in   ~Iudcm  recruiting.

                      •                                                                          were
               Ae:1demic Ad~illOn; durin, the enlire 1999·2000 xrulemlc year In th;1I po.silion, they
               pro"idcJ ~cadl.'!!lic counseling and advice, and wen: nol enS3&ed in itudelll tttruiUll~t.

                      •                                           were Academic Advisors during part of
               1999·2000. wilh Ihe dutil:S descrilKd immediately abol·e. In :3ddit;on. for part of Ib~t
              ),C:tT.              wa5 Ass"',;;!.te Direclor orTc~eher Edutation ProllM'ms, in which
              pusition she rccnlited tICW facuily. detennincd imltudor scheuu 1<:5 and pcrfonncd OIh",
              duties re13tinlllo instructor!;. Far Ihe pUrl orlhe )'c", Ibnl she wllS nOI Dn Acrulcmic
              Ad,i$!lr.                WlI!; a fin;mdal Did advisor, in which pusition she 1I111'ised sludents
              :mol l'=nl5 aboul fm:md:!l aid OPPO"W1iti~ and determined appliCIl!lU' eligibility for
              fin:mclal :ud. Thus. wlule she p;IfIkipal~d 10 dte lI....-:rnling of financial aid, her bonus wu
              not h:ued on hc, I1wuding af fimulCial aid. t\eilher afihtse anployccs WIIS Cllgaged III
              Sludent recruitment.

                         •                  w:as AssiSl~n! Director of Teacher Education I'ro!,'ral1ls. WIth
               ,·;rtuat!)· the s;mIC duti~s described above for                  when she was Associale
               Dinxlor ofTeackcT Education Programs.

                         •                   sen:ed in a purely administrot;ve po&luon during 1999·2000,
               first 115 Dcpanmcnnll Business M:m;IgeT and then as Dircrtllr or Aaiminisu:ati(H! lIlld
               Opcrauoos for the 5;:hoolll[ Canlinuing Ed\IC~!ian. Her rc.1p<>nsibililies mcluded budget.
               purel1a51ng. lechnolog)' and the like. She "'"DJ l1(l.I engaged in SIlHknt tC('ru;un~nL


     ~l~ Glori~ Pilllt!! 

     April 26.1002 

     Pagc J 

                       •                \\'U A$.$()Ci~te D~;1Q of Academic AiIail'$ (or AdulL
             l'n..!ersndu;u~ M3in Campus 1'rogr:Im... ~ nuru.~n~1 ~c3dmuc po,sition do::al.Jng \\llh all
             pJwcs of the academIc progr:mu and r~cully for oo...",mpus LUldngradu;ue progr&m$.
             She ..!id not recruit students.

                       •                  pl~nned, d~\'dQpcd     and supervised variolls markedng
             mat~'Tiu1s, sueh:lS nd,·crt's'ng. direct mail. un..! milSS media, ~nd unalyzed Ihe n:sult~ of
                                                                                                                    I   I
             Imous 51l1llC!;IC marketing iniliali\'C5. Her lilies dunng 1999,2000 11"tfi: Markedng 

             Director. WKllho:n Dirl'CLQr of Marketin, :wi Communiealloru. She \\'3$ engaged in 

             m;uketing. nOI T«l'\Iitins. IUld had no IXInlllCl 'A,th STUdents.

                    •                      s primlJlY duties \1l:I"C csl.:!.bJlshing corpor;IlC d:JSS 5ites 11;!h
            corporate employers III\d establishing policies fQr class ddi\'~ry for corpor.:lle class sites.
            and he did not reellli t studcnts, He also lupeTl·ise..! nnd mnnagcd the Marketi ng
            Adliscmellt Dirtclor uml Rccl\lilmcnl DireclOIl. HIS mk,s dunnK 1999-2000 WCTl:
            M:uketing Director, :lnd then DirectQ, of COI')JOnle Cont:ICts.

            The Univcnity bc:liel'CS thaI the duties ofthese II emplo)«s plxed them outside: the
    scope: of oo\,er;t!:c of lhe law, because they wcrc nOI ~ensag<'d in nil)' student retl\l iting nr                  ,
    admiuion activities:'

             The bonuses paid to tll~ other four cmployen totaled S70..~09. The University ro=quesu
    Ih31lhe Drnn Audit Rtpon be ftYI'cd MJ 3.'; 1101 10 include Ihe 563,545 paid 10 lite 11 employees
    \\ hose dUlies :IB dt!SCribtd 3bove.

                      B        StmllllTa Bt !ixl;ludtd from ToIDIs in Dwn Ayd'! Repon

            The Dwn Aud it R~pcn 5tntCS Il1nt there Wen: 1.157 ~tUdL"11 t S who were included in thc
    IKlnus c~l(ulution   for :H:~d~mic year 1999':1000. That WIl$ the number derived from lh~ datn
    compikd by the University ami submiued 10 the ~udilur; 51lonly uftn tM 3uditors' site I;s;t.
    Tbc Um,'cn:ity compili:<l. those ti:JUI lIS CQm:ctiy as lho:y could, in ordn tn mtetlhc: ~uditoll'
    dC3dline$, Il!Id the t!nil'e!'!iity beliel ed lhog d~ta were c:orrecl when they were provided.. Sincc
    Ihllltime, however, the UWI-etlity has had Ihc upportWlity ID vcry =ful1~' review all the
    students on alltllc );SIS, and h:J:I delcnn;noo lha! there wen: some inadvertcnt errors in the lis!s.

            The nudilon aIm requested and !he University produced :Ulothcr list nf nil Studenll
    "ll1llnlltho~ 1,157 students who rec:ci''"ed Title IV firn1ncial :wislancc during the 1999-2000,
    1000-01 or :rool-C2 ac:Hkmie ye~rJ. lind the ~JTI(Junt ofTit1<, 1\' aid lhey rccchcd, Th:>! lUI
    tOiaied J(;9   $lud~nLs.

            To date. Ihe UWI'crsily hllS di5co\'crcd three s;pcci fk    C3lc~Ories   ofstu<kms that n«d 10
    be r.:-moh'd from thesc lisu.
~b.   Glomi. Plklill
April 26, 2002
Pag~ .l

                             Duohcatcd Student.

          The hSI of 1. I37 Studmts consiSle(i of 25J students for Lhe Inb.nd Empir~ Ca.mpu.s
(-IEC"). ·00 students for the Campus Mc~lcrll.t~"d Progr:un for Adults \CAPA")_ nnd 47~
stud..--nts for Lhc Schu.>1ofCominuing Educal.ion·~ [ducation progrnm$ C··SCElfdl. The
Urn' crslty', 5ub'c'luc:m fe\ icw has detennincd th.lt fuur of Ih~ I.! n studentS '
                                                        ) Werl: duplicates, :LS Ihey look: SOlllc COUI¥l'S
Jt both IEC :.nd CAPA and thus \\e\'"( listed on bOlh Ihe lEC:md CAPA 1;515. RcmovJnllthcm
from tho;: tOIa! mlUC6 Ihe numbcrofstudcnts to I,ISJ nudents.

        Of lOOK tOw- siudents. one ,           "'lIS duplicated in the ilSllnll of-ki9 fin:mci~l aid
=::iplcnls IlIId her Tille IV funds" ere listed Iwice. RCIIIO"IllIl this stud~lI reduces the number of
S1udenll who rece;\'cd Title] V aid from -\69 Studt'll1S tn 468 students, I\lId reduces lIle FFEL total
by S5.OiIl (with no ch:lII,!lt 10 the Pell Gram lot~).

                         2. Students Enrolled Frionp the 1999·2000 Academic Year

         Tile Univenity h:is aim determincti that $e... ~1 of the 1,153 slud~l1ts did not bej:in their
cnroUmem in lhe 1999-1000 academic y"at, 001 wm: rnrol1ed and in Dueodancc in the 1998,99
:l<;ademlt year Or prior ye;u-s. HOlYe"e;', Ihey had stopped attending for One Or mor<: IC""$. In
prcp:uin): tile lim for the auditors, Ille Univc£l;ity inadl'entntly listed them II! new ~lud~ntS
tc.:ru;tctl in 1999·2.000, which they were not
          O( Ihis group ofstuden[$, 25 "'ere included. on the list Lhe Um.en,ity C'Ompiled for the           I
audilors;u $1udcnts "ho ,,"ell'ed Title IV :lSSiSWlce. S" Exhibil A. Thus, Ihe list 0(468
financi.al aid l'IXlplcnts referenced ttbol'e $!louIe! be funbcr adjusted b)' deleting Ihese 2.5 Studenll,
and so the: ...:vIsed total if -I4J stu~tnls. The Title IV funds l'I)ported for these 25 51udenLS should
also be !'emu"ctl fron, the Int~ll. reducing the tot815 by S-I22,817 in FFEI. 103115 and 55,1 26 in
Pe!J Grants.
                         3. 	 StudenlS wilh a Record of Cont.1ct Wfth the I]ni'CT5ity Prior
                             [Q   1999.2900

          The Uni "ersit~ hu determined. upon a C'l\tTful rellew ofstudent records, that an
oo~itional15 student>' IIho wcre on the list of Title IV recipients given 10 IIIe audilors, were in
LOI113C1 wilh tile !Jml'crsity prior to tht! 1999-2000 ac:tdcmit year, even thOtl~ they hat! not
rnrollcd prior 10 1999.2000. TI1C!JC $Iudcnts had alre3dybeen recruited or mooe inquiry to Ihe
L; nh-'mity prior to tbc 1999-2000 Dca<kmie lear, and were all'QJy in the UU;"~"rSil>,! .Ia13b..sc
and r«Ord$ J)'Sleu\. TherefOr<:, thes<: 1S studenll1 shouW not be: included in the list ofstudents
rrcI'\litcd in 1999-.!OOO. A lis[ ofthe5e students is included in E:..hibit B. ThU; reduces the
number ofntle [\' recipIents by a further IS Iludems 19 428 students. The Titl.! IV funds
reported for these 15 studentl sOO'lld nUo be r~mo\'ct1 from thr 10tals, reducmg the LOt~ls by
S2~3.SS7 in f'FEL lo~ru and S19,485 in Pell Grunl5.                                                          I

        \Is. Gloria PiioUi
        .·\ pril 26.100~
        Pall" ~                                                                                                       I
                        c.      AddjljO!ll! Adiusment \0 Tille IV Funds lotJls

                The am(lUn! orTitk IV fl,ll1!ls motived by the 469 $'Iud~n15, compiled by the Univ~ly
        on the spreadsheets gi'"CIiIO Ihe auditor.;. needs to be f",nher mluccd for ~n additional Rnscn.
        The 428 Ti!le JV recipientS i'l::mnilung on tht sprc3dsh«ts aftcr- rile revilions dC5cribc:d above nil
        bega" a progrnn al the Unh ("liily during Lhe I 'J'j9·2ooo academic }'I:M. In the lislingli of Tit!e:
        IV fWlds n'Cc", ed \hal wrn: given 10 the auditors. Ihe Uni'-CI"5ily indudcd all Title IV fWlds
        m:ei,'ro by th....., studrots 10 3Cl1timllc years 1999·2000,2000-01 :utd 2001 .02. RoweveT. some          I
        or thew students complCloo the progr.un which they bepn in 1999·2()()(), and SUbseqUC11t1y

        dDeidcd to enrol! in WlOth~r progr:un at the University. A Iypicn! c~:Ullpk would be a siudem
        who ~IKr!L'Il lh leaching credentbl progr.un in 1999·2000 and afler comple!io" or that progmm
        enrolled in the mllSlers in edu~~liun progam sioning in a laler ynr. There Were 21 Title IV
        rrciplculS who IXIllIplet~d the program th~)llx:g;m in 1999-2000:ll1d then enrolled in anolher            I
        pro~r:UII" ~nd 12 afthasc 21 n:ceh'("(] FfEL loon :mdIar Pell Gnlnt funds b:lSCd an their
        cnrollmcnl m the subscquem progrum.                                                                       I
,	              In prep;mng Ihe Title IV fundingsprc:tdwcu far Ihe ~udilOn. the Um\"ersi ly includedtll
        the Tille IV flillds disbursed to IhoR. studenl5. i.e., Ih~ fun.!, fOf thclr enroUmcllt in Ihe finl
        prollMlnl und the funds for their enrollment in Ihe secon.! proW"lm. TIle Univcrsil)l believes Ih~t
        onl~ Ihe enrollment in Ihe first Prollrrun - the progrnm thai the srudenl started in 1999-2000­
I       rou!!1 h;we p<mibly btm relnloo 10 the Ittruilill);:!IId bontl5C.'i for- 1999·2000. and lhallhc
        5u~uenl program beguo 1II a later ~arw3!l not rclalM. Thus. Ihe Uni~m;ilybelie.,.cs mat Ihe

Ir 	    Tille IV ftmUs rqJOrted for Ihese 12 students for their_d a.::KIemlt proJr:lm should be
        removed from the IOtalS. rcdudng lIle tol:l1s by S84.071 in FFEL loans IUld SI,87j in Pell Grants.
        A Iistmg oftllese siudents is provided ... hhibil C, l0lo-.:ther wilh the amounl ofthcir FFEL io:lrul
        and PeU Grants listed On Ihc spreadsheels provided 10 the auditors which wen: ncrually for these          I
        students" 5ubs<:quem progmms .. f cdlli'ation

                        D.     Summary of Redunions in Number of TilIe IV Recipients and
                               Amounls OrDI!e IV Funds in lbe RwmlllsndW Liabjl"ty

    [           rhe Dr-If! Audil Rcpon T,'coo,mcmis a liubi Iny (If S7 .284.8 19 in fFEL fuolls aml 

        5422,216 in Pcll Gr:ml funds, which is b:lSed on 1.1 H Sllld.. nlS who beilln Iheir enmilmenllll 

        Ihe lEe. CAPA or SeE/Ed p~m~ III the 1999-1000 3CWemlc >'eaJ". ofwhlcll469 r«eived 

        TIile IV MliISlancc. A" described In So:cuall:i I.B and I.C :Ibove. thl:$C figures need 10 be n:"ISai 

        10 lI:mQ\"elh" foil.." ing I1llmbm; of slllden" IUId fFEL ..no.! Pell Gr:wt fWlds. 



     \Is Grona P,IoIII
     \pnl 2(0. 2002

                                                          RtXtJ\'mg             FFEl                Pell Gr.In!
                               Re:uol]                     TIll!: IV      loan Funds                  fupdJ;

            I.B.l- !)uplicau,d SnuJents                                   S S.093               S         0
             1.1)2 ­ 5tud.,111.. t;llrolkd
                     PriOrlo 1 99~·2000
            J. 6.3 ­ Students" itl, Conl:ICl                 "            $422,817              S 5,126

                     Prior \0 1999-2000
            I.e           Studrol Ervollmml in
                                                             "            S2 43,8.57            SI9,4SS

                          :t   Subsequent Prosnun             0           S 84,071              5 1,875           I
            Toml Adjustments                                                                                      I
I                                                            "            5755.838              526,486

           Rerno"mg these :.unUUn!5 mlue=s rh~ nmounl:5 in the Oran Audit Repon to 56.528,98 I in
    FFEl. funds and 5395,7)0 in Pell Grnm funds. bued on a tel;Sed lobI of 428 students who                       I.
    rcccln:d Tille IV :l5Sislam:e.                                                                                ~

I                    E. 	         Additional Rrnsons the Omn Audi! Report   ()versta[~s   lhe
                                  Rerommcodcd LipbiliIV
        The Draft Audil Repon basa its recommend31ion of liability on the Tille IV lISSi51311CC
    =ti,~ brill of the m:w studcnlS in the lEe. CAPA and SCFJEd pmgmml in 1999-2000. This
    npprulK'h significantly 0' L'TStJ\6 the recommended tjllbilllY, for III IL"3S1 Lwo r=sons.

            Fin;!, tJu~  ilpproach assumes !11.1! the three recrullUS woo received bonuses ~iled.1I of            I
    these SludC111S. Tb:II ""35 not tbc cue. AI:uIY of these SIUdC11lS "-ere DOt n:cruilal by these Ihr~
    recrullel'5. This is iI«;wse ~r of thc:se ilud"nlli (;unc 10 Ih" Uni"crsily from other IOU~.
    c.g.. 3511 resul1 of knowing friClloJs or (3m!ly members who bnd 3ltellllallhc Uni\'cl'5ily. as a
    resull of sceioJ: Uni\,erSity IlIIwrtisinl> in prinl Inedi:>. (15 !I result of the Uni"ersily's Siron!!
    rqmtation in southern Californi:J., Ihrou!>h employeT·sponsored progrumll. IUld fOT vurlous otlll:r
    reasons. Only a portion uf tile stuJcnts rcr"rentt<.! in tile Dr.lft Audit Rt:pOrt wcre recruiled by
    the rec/uilers who rcecil'cd oonulcs. am! so the number in lilt Draft Audit Rcpon is significnmly
    ol'cl'5/~lcd and llilcmid b.: $ismficanlly l'l'IIucc:d.

            S~ond.      the bonuses paid for Illt 199!J.2000 .t<.d~mic yc-..r wcn: ~>d QI1 an ""'mISe in
    ~I"nue for Ihe lEG. CAPA and SCEIEd           programs from Ihe p=;ous IIC1Idcmic ~:11, As
    o.I15cuued with Ihe audilOf1; dunnS the st\e I~S!1. bonu~ were 10 be: paid only if~'"cllue
    111CTC;IS~-d III 1999--2000 0"':'- 1998·99. Tlw~ro[l!. lhe Uni,'cl'5ily beli,,\'~ !hilt if the OIG it loins
    10 recommend ahabihl" b~ all Tille IV furnls- reai"ed, il should not Ix! b3#<l on all thcTille
    1\" funds ~cc,,'ed by:tli studenUi who slane<! in \he IEC. CAPA and SCElEd progrunu in 1999·
    2000. but rolher on !h" increase In tun ion rCI'f.'IIlJe for these prol:flUlls from 1998·99 10 1999·

      -                           --
         \Is.. Gloria Piloui
                                                            -                     -                                     -
         April ,26. !002
         Page 7

         2000. The tuition rc\'C'Iluc for [hese three pmsmms for the I998-99 :c~dcl1lic ye~t was
         appro" [motdy $').7 million. nnd rilr I<)<)9·2000 the tuition revenue WIIS appro"imately S I J.8
         lluUl,m. an increase of approxim"I~l y 52.1 nll11 iOIl. or abO!Jt 2 J jX'rl:cm. O~C1' the 1;1.5\ five yc;m:.
         "hlcll of course Includes YC'lrS "hen there II as 110 bonus progr.un, tilt tuition """"IIUI: for Ih~
         three progr.utls irn:rc:~ by 1m :I'crullC of approximately 10 ~rnt pu year. So. of cows.:, il is
         \ ery li);;ely thai a grt'31 many oflhe $tudcnlJ" ho enrolled III 1999·2QOO WQuid b.:Ive enrolled
         ~,."lI had there been no bonus program in pl;KC. Thus, s liability lhat is based 0l'1 the incl'CJ.Soo
         ~'l\ronmems and R:I'C11UC 1M 1999-~OOO is ~ rnllC:h more logic:!! nppl'OKh Ihm OISIesslng liability
         for i!..lllew sruJents who enrolled 1tw.1 y<'ar.
                 II. 	   There WllJ No Harmful Err«1 on Students or the Institution Due to tile
                         Bony," Pmd

                The Uni\"l~f!iii ly h!IS lldmined lrot il paid bon.w:s II;> c~runn ~mpll;>Yft5 fl;>T the ]9')9.2000
         at~d~mic  yew. However, il m~'nl~lns 1h:1l there <\-:u 110 :ltkcrM', h;unlfu] effect 00 srudenlS Of
         t~ institution based 00 Ih:U o;DmpellSation. This is II fDCIor \hal the DM Audit Rcpon does 1101

                  Fint, the Uni"ersllrdid nOI compromise iLs admissioos st:aodnnlt in any way during Ihe
         1999·2000 nt~,kmic y<'¥. This IS nm ~ elISe of enrolling mO re studenls at aU COS IS, Or enrolling
         ~ludcm5 wllo Wtl"\l lmqualified for Ihe progrilm in which !lICY enrolll.'d. The Univel"5ily is n well
:~       known ~nd n."SJIC<:I~d rollional uni\crsily, which h:lS been in exislence for over 110 years. It is
         C5pecially well known in soulhern Califomia fur its high QUillity libaul ~ru unliergr;ldu31e
iL       degree prognwu and for its tc:tc!n;r illlId g...~dUllI~ ednculion progn.m.s. II IIbo has nobble
         pro~rom.s in businl'Sl:, l~w, public ~str~lil;>l1llnd psychology. While 1m, Uni\"nJrily
         experi",ICo:d on ilK~;l$c io enrollments in ils fEC, CAPA and SCE/Ed PfO¥rlUTlS in 1999-2000, it
         did not do SO :lI the expense of ilS C'llablishl.'d ac:nlcmie s1imdarrls. All "ndcTul admiued durin.!l
    I	   ! 999·WOO were IUbjech:d 10 the same lidlllin;oni standards lind R.'luin:ments :1$ in Ihe


         prccroing nnd succeeding )"t'M"S.
I                Funhcr, lind lIS c,<idrnce of this facl, the dropoul, completion lod gradu~ l ioll rales lilT Ihis 

       cohon orstudcnts wu consisl~'IIt wilh th~ r;l.tC$ tor students who "ere admitted in preceding and
         succeeding ye:D"I. These students w~r~ ILS qualified IIIld successful as their peers in I:":U"licr and
         later ~rs. and the p.~nl orbon~ for 1!>99-2000 ~d no idenufiable efT"1 on Jrudent
         n:lcnlion and SIKCes5..                                                                                             I
    B             In addition, it u a \'ny impolUl1t poil11ll1al studenl5 wllo enrolled in 1999·2000 were nol
         h:unll'Cl by !he p3yrncnl ofbollLlS~s 10 cOT1~in employees for Ih~1 yenr. SludclIlS rccci\-ed the 

         education Ihcy p~il! (ur. and il ""tIS the S~n1e. hiKh qU~lil )" education lh= lillivc.sity has long 

    I    offered. The UI1l,'en'ly h"" remalllro throuvhoul f\llly llCcreditt"d by Ihe Weslern Associ~uon of 

         Schools aU<! CtlU"J:"J. The Dr:Ut Audit Rcpon does not m:>b::my findin!! th~t:my ind\"iduru
         irudo:ni$ w~rc harmed:lS a result !li the 1999·2000 bonUJ. payments, lind !he audilors did OOt
    I    make;my sUliestion 10 the Unin:fSlIY that they !hou\:lu!hal ,,":>S the case. The n:comtnclldatioll
         in Ihe Dr1Ift Audit Repon t/W the Univmlty ~yo\'C1"S7 million In Title IV funds is
         1;mlrunoWU to 53}'lIlJ;: Ulal tl'Cry one of those students ~ Clibt:r unqualilk<1. or dit! 001 rcc<:ivc
                                                                     -- -
        'h (il"na PiIOlI;
        -\I'nl ~b. ~OO!
        p~SC   Ii

        the ~o.IlIC>1ion (or which he or she CUnlrKled ~OIhlng could be fllf'lhtt from tJv: Il'\Ith, ;wd the
        l'n,lCf$jty,,-;she$ \0 r:mpbuiu Lhal t'ac1 II) the: orne.! of In$pcclor General in the RronaC:S1 terms

                    ill. 	   The Liabilil1 Rc:romrnclldcd In Ihe Orafl Audil R"JIOn IS NUl The Approprinle
                             Pcnal,,' II! This Ca!C

                The Univtlllily bdic~ef lh~t 1111: 57.7 million pt"lI31ty recommended by Ihe Office of
        hup..-clor Gcnrnll in the Dro.tl AuJil Rcpon, c'-en lli :w;IjU$lcd U dC$(ribN above, IS:III c:ctmnely
        C\C':»",'C lIiITMJVnl thai is no! w.muutd in Ihe cin:umsunets or thi$ case.

                             A. 	     MjlinEr. Fx\O[J

I                   1lIc Uo.i.,·crsiIY bclieva thai the UlLlIiIy oriLti conduct rniliwa lpinll the ,'OlumillO\lll
        pm..h~ I'ft.'OIIlmmded        m!he Dnf\ Audit Rcopon.

                  Flm, il is important 10 n:mcm~lhe Kope of the bonus pltm and the CH'tumSWICCI
        Jurrtmnding il5 brief \15<:'. The: bonUl riM ",II Oilly used in the Sc:hool orCOntmUlIlll Educ:uion.
        "hi-h is unly one of the Uni\'ersuy' J .ix ~hooll. It ""lIS nCI'er u!>ed in QJl}' afllle o!her schools.
        MQI~v~r. Ihe OOml.i\ pl3J1"'lIS only in pl~cc for one )'C1lI". h wus implemeUled aner SeE
        ~t1lplo>'~(s made a recommendat ion to ~cnior University officials to experiment witlt t1,,~ plait in
        conjullctlon wllh other marketi!!s intll~tiveJ. in ~n crron to incre~ revenue in SCE. Thilt WIIS al
        u tunc ur umuilion in the Icnier 1cldenhip allhc Universily. The Ex«uhve Viee I'relldenl. who
        Will new to h.i&her edLicluion aftcr a c:II'Ur in public Illallagcmenl. b;ad only been ~11he
        Uni ...· nil) (or II few monlhs.

                 Tbo: seE wff:llhised the E:l«uti~-e VICe I"usIdcnr lh3r. 0Ibcr Ithooll w~ p.;I)1n& their
        recl\l'ltn bortt$:$like tIUI. and. Nscd in pUl 011 tIw f:u:t, the SCE lI1fTbeli.,'c:.llhat fIlCh
    I   Pl)mcutl .. en: :lCctpUblc. This 'Ins expJaiDed III 2nd confirmed by the-auditors dunnl the site
        ,lSI!, • stn<!d in the: zuditQR' l'indinJ! Point Shed p""" 10 Ibe Uuin:I~IY at the time of !he ail
        CUIlr<:ml(:e. which Il3ri ~SCE ~n JlI1IPI»N 10 the Uni,.."sity adminillnll10n II bonus plan
        "ilh lhe belid thai the plan complio:d ",ib III.: law," See E:d,ihit D. pale 2. The Exe.:utin· Vice
        Pn..,.h,knt appro",d the SeE bonuspl:m In 1999 for. ooe-year. trial bui •.

                      summer ofJOOO. the Unh'ef$ily', new Vice President for clIrolhnelll Mannl>entent
        h:.d ftrri\'cd ~lId bee-.lIne awale orlhc SCli b()11l15 plan. Shc advised th e E~ecuti"e Viee Pn:sid~'I1t
        ofthe .:.\'~IClK!e of \he incemi\'e tompc:nllltlollpfO\ision In the HEA :md. upon rc"ic:w of the

        dllnll<' Ih.: oil<:  .-is'. """
        m311CT. the E~eculi\1: Vice: Presideot ptOnlJ)tly lermin:It.:d the tXpt'nmcnlal pl= It "",IS thU5 III
        crrc~' foronly one)"C:II" IIDd        not «Itndcd.. These circwns~a wtt'e deJcribcd in dctllil
                                     were ",irelll!!:d ,n • kiter from lboo: l'ni~-.:nil} '5 P,,:si&.:nl 10 the wdi\or$
        rn (~cmbc:r 21.101. ~ copy nf",hr~h" rntllllkd .. Exhlbit E.

               In widltioo,!he size oflbc bon".... "'ill rkli brsc. This is not ~ e.uc of cmplo)'ftI
        rcccwln,...w.J abrics :IIId hUF bontItes INt d.... fihcir wmes.. TheM: '" eff! aU 8w,lisbcd
        CTnplo)""lI oflbe Uni\'''Dit)', many oC",bow had beal mJjllo~-ed in ~ SCE for mill}' }'tan For
        the S113.9H in bonusn n:fctcnced in the Draft Audil Repon.,            ""*
                                                                               1S atlJ'lIOJll'Cll' IOtal


          Gk>n:l Piloni 

       Apnl :h. W/12 

       Pa", 'I 

       .iI.¥"",~ ..'c ulariec   iar !he i9'JII.:;!:U!XJ }l:&I" "ne S60J,OSl, so 1M bonuses lien:: only an a\ c:!'lIgc of
        I. ~ the emplo~~C!'1OI3I tuIiIpcns:llil>ll. ror thee l"oor~plo)"ces \\110 lIR!bc only OMS 1lw::
       t.:mH·~1y believes ,,'ctC" co,'em! b) 1110;' &n~ of Ihe ,"_""live I;OItlpn1J;1tiOIi pro"Ulon (as
       ducu.ued III SiXtion LA :1bo"e), the Ii/,;WJ!lIle bolluses were 570,409 Dud I~ir Alaries ror th.e
        Im.~1)00 year we", 5194.191, 50 the bouu.~J "erg only;m a\CI""Jge or26,6~. Oflh" tmpl.,yccs'
       tOI~1 eOlllpcnliuuon for Ih~1 year, Thnc ftl!lln..., shou ld be considercd     Ihe contc.>;1 of Ihe unnual
       payroll of Ille School or Conlmu!nil rdu,atioll for 1999·2000. wrueh WIIS 57.686.307, ~lId the
       p.1yroll oflhc enllre Univusuy. \\ hich WlIS S~9,~S6,957 far that reM. TIn", the bonuses pnill of
       S I )J.Y~~ \\l:)'e less th;m o~·h31r of o~ p..-n:cnt o(!be Uni"ersity" 5 p:I) roll in I m.~ooo.

                1'0000000-r, during and folio" ina tile: AI!Iual'$' liil<: visit, the Uni>en;1y bclit'\'CS it 111IS
       <:,<:=Iiuglyeoopcral'\"e:md fonhcuminll l\Jth the -"tOB. Unil-cn.iry p..:norl!\cl ....Ultngly
       upl;unal!be bonus plan and ilsonp"" prolKIN fullllX~ to all studmt IlrlII other WII 1M
       .oudliOB requested.:IIId piOUifM..l) male II1Ii~1e foc IIller.. i~'S I:"ayerllplo)'" lbe ilUduors
       Il.'qUnh!t1 Fol1,nnng tbe site visit, Ihc UnilClSi!y continual to devote siguilicant ruoum::s to
       producing the: IIIroomlion and compthnglbe cW:1l1at the: "udjto~ requested,:IS o.prdluolUly as                        I
       It oouk!,

               In short, while 1M Umlersit!' rcJ:rttl the ract tllatll eH!t URd!he Inal bonus pl:Lll, it look 



       prompt ;u=tion to discantinue. i! :IS IiUUII ~a it ",alilCd II \\'11$ in "iolntion or tile I I EA, lind it has 

       I'OOpcmted completely ~nd ruUy wilh the DIG throughout its r~view or Ibis lIIotter. The 

       Unwersity bdic,"e$ thaI aU af these facloN ~hould C:IIT)' significant wcighl in detennlnlng lIN:
       :IJIpropn~lc pcn:.thy to be ilSSI:MCd in tN' tax. 

                         e.        RrnJOYilI ofFilWlS'lal Penahy

                FOI'" nil aflhe ~ d,KUQed !Ibo>c,1be linil·crsiry does IlOI believe that II 5bould be
       -."'JM.'<I an} limnci:al petal!}. ~la[C'd to ilS 1999-2000 boous pbn. nu:, Univ.:nity's mistal;e
       "~m~YC1ent,        and tbC' Unilcnily com:ckd the IIIISIllkc:lS soon as il rnli>:cd the: violation. No
       'tudcntli 1\ ""' nanncd by the bonllSC$ pa>d. none r;ailed 10 I"Ilhe cduntion they wctt promised,
       and the Title IV d.:ill ...... di5btu'5oJ 10 the Uni\ctSllY \lI1ere wdl spent ror iheir intrndtd pwposc..
                 nil:: IA.'p:Irlnlent \:If EliUC1lllan has repeatedly ~tnlcd !lut it is not OUI to "ItCI" institutiottS
       or to undul)' penahze good IIlSlltUtlOn,. ,\'Itllied in n 2001 ktter 10 ConJl.ll!SSlIIan Ron Paul

       'nUollin" Ille o.:p.lrtment's MS<:3.SlI1~m 01 u tlhlc ·f1gure Tille TV linbility nl!~inst II n~tion"ide 

       ~chooll1rouJl. tltt Dtpartment"s "rlllll Jt~p il :II "",,)'$ to provide technical and other "ni."lln~~ to
       hc:lp II 5Cllool.soll'e i~ dcfiekncks Md ben"r :;ell'e SludClIlJ." ThaI Icu« lIocl on I"..,.y th..' 1 tll\'
       D':p:u1mclIl alwa~'s tales ear~ to consid~t ~ ~hool'5 pcrform:lllc~ in m.:clilllllPlllicnbk
       $tantlnnb. but thnl bccaU$C !be: Dcp.VtlDC1l1 .'''';J.[IDl/I rail to :.ddr.:ss :I Khool' J I'l:JIC';!lcd Jl3I'Utory
       ;nI rCI"btory 'iol:ltiotu. il .... iII "UnpMC SOII>CttOm ....hen n~ to proI~"'I'1 ~ in~1y

       and tIw Fnkr.d fi~ i~" (Sec £.\hibit F. seo..'OI1d pa-agrap/l.)

               The UntvetSlIy bebeva IMt applDlCb Jhould be applied to Ibc: Unil'enily of La Verne
       IlK Ikp.uouent· 5 prinwy flXUS sbuuld til!' WI rn.urin& that a school has com:clCd ilJ; probkm
       and j~ nct lunger 0Ill afc:ompliancc lIull the HEA. In Ih;~~.. that has bcett folly ~phlhcd.
       1lIc: Lml Cn.II)' """ out of COtupti;!lll;C ror uoly ~ )'QI". ruxl promptly broupt 1\JClfb.,k IIItO
                                      ,   ..                                       II    v     e­

          \Is, Glori;!. Pilocli
          Api'll ~(" 1'lO2
          .... 10

          romph.mcc on ils O\\n mUI~li'"C. 0,,... ~ ~car berate Ihe Offict' oflnspcc1or Gmcral c'er set (001
          011 c:unpus, The Dnll: Audil Repon ronlimls IIllS (KI.

                      We Mhe,,, 1111: OIG should rotuidet Ihe Uni\'cr:si1~ 's perfurm:m<"    r«O"".      "hieh clcarh
          dcmoIl5~U:S tl1311his "1111 QIII:'lIniC. limiled KOpe "101.lion thai WII!! promplly CGm.nclc:<J by ~'"
          Unll Cf'Slly IISId 11\11 ~PC;;Il"d. TlM:rc" efc no ~rcp<:;lIt:d SlUlulOry :md rtillialory , IllJaIIClnS. ~
          \\ 1rt:tnlulglhe I8llctioIllI rtcommc:ndcd III Ihe Onlf\ Audil Rcpon, The Unin'rs;IY h:lS d,,"01Cd
          ILJ9'tfi<:lll11 ['""""'cs 10 the 1M "isil, !he follo\\,up pmod:ond Ihi~""'JIOIl>C lu!llCe Draf\ ,\OOil
          R.:poll,;and ITlOII auuredly will 1101 iii: rcre1tllli the OOI"pc1l5atiQn p..""tleC$ covered In Inis

                    TIM: Un;versil)' would like to poilll OUllhl ...·beulbc incmti"e eOmpl'fU3lion pro"ision
          "aJ added. 10 !he HEA IS pari Oflhe HigbtT EdlK:3lion Amendmcnls of 1992. Congress Sl:IIed
          ihlIl ,lJ intern in adding this provi$ion, aIan.& ",ilb numerous other c~&a 10 Ihe la..... _10
          urccuanf 51wems Iiom UlIICrupurou. Kboob, It\luce Sl.UdcnI Igan dc:flWll "'IS and simil.­
          PWI' :s :1 For cumple, LbI: I'qIOn ohhe 1i0UK ofR.qm.-lmlatiVt'$ C\lmmlllce on Educ;U;on and
          I.;abor staal as (ollows C(I<lt'em.ing !h.i btli. H R. 3SSJ:

    I                                Second. U,R. JSD milk'" m~jor ehan1;CS 10 enhancc Ihe
                           inlegr;ly of Ihe 51udml finarllaal Qid progr.uns.. l1lc sludC1I1 lid
                           programs huve b<:cn tami.I,ILed 1.1)' rcpons detailing Ihe exploitation
                           of stud:nts by unscrupulous schools, Growing defuull co,I).
    Iii                    schools offering overpriced Il!ld inferior educauona] pl'OlJW1lS amI
                           Il'hools 3IId lenders ..... ilh un:lCCc:pl:tble dcf3Uh tala. The eMy 

                           IlISUinplion e:tll no Iongtl" be m. that C\'a)'Onc \\'ho UJuma the


    I                      lil~ Or-cdllli:llIor" offen. qu:alil) ed~tional progrmi or ~ the                             I

                           tnlere5\.f of ~udnus IIpp",miMI, H.Rn 3SSJ iDclud", nearly 100 

                           provisioru 10 sucnglhrn ronll'Ols on scbools and eollCSCS 10 end 

                           "''''1<' 3IId abuse and 10 mlnimL7.C 10III'I def~tlhs. T11cse pl'O\'Uions 
                           inc:llade prolubiuul lhe usc of commi$sioned sales pcrj,O\~ IIDd 

                           n:Cf\lIlcrs, .. , 

          H,R, Rep. No. 447. I02d Con", 2d Sesa. 10 (1992), reprinled in 1992 U.5_C.C.A_N_ JJoI, 301).
          None oflhcse (XlOts IS pn::KnI BI the Ulllwr.ll1y of La Vern .., The Univo:nit)' of\..ll Verne has
          an ,,),ceUem rtpuuuion, off...-s quality educaliotW]11OJr.UnS,;$ \' .. ryco~ abollithe wclf;ITC
          of its s\Udenls. and h:as always h3(! 10... J(udelLi loan dcfnull I1I1CS. Over tli.. last Itn ),,,;m;, its
          FFEL cohort deraull r:t.1es h;a\ e 3' c1ar:cd ull.xr ~ .. IIIld ilS FfEL cohor1 defmult nile (or fedcrnl
          fiSQ])"C:lr 1m, Inc most rccau)'C3l' rOf ""hKh such roUtS ha"t been pubhshed.;1 2,~•. This
          r..lt II "I'Pr(l.timalcly h:olf oflloe D~IlOl1llI a"cr:t.i" r:lI..

               111e Unin:rsil)' 1'C!Ipl'Clfully requcslS llul the OlG issue a fUlliI aladil fcpon thaI dll't.'CU the
          Uni\m;ity not to rcpc:1llhis \'iolalioo. bullh~1 doCII not ~ 3Il} financill penally 1,:t.inII die

        \Is. Gt.'na Pilonl 

        Apn126. !U01 

        !'~);e   It 

                        C.       a!ltrn.ljl~~   Pcn3Iw

               While rh~ l-mn"ll'Y 11I1cl'Il.'Iy and canle5lly bdievH, for all the ]"t'~K1f15 SC1 forth abol ':.
       ~hat the trrt:ullt5~es of this case "..rr.lIIl no financial penalty against it wknlS«\"cr. iflll" oro
       !ccl~ n mll51 rtcommcrnl.l fimlllcial 1"'"311)" the U"'\'crsily lK.-1;e'Jes it illould IX" \~ry
       !>I~I (innl1y I~'l;!; than Lhe   pt'llohy dcscnbod in Ihe Dmfl Aud]1 Report

                                        Allminismui\'e Fine

               Ifl penalty is be: =mnmcndcd, the University bel'''''cJ ~ line. rather th;m a sigmlit:lm
       n""Yln~"IIl afllle Tilk IV funds ~i'·ro. is mort! IIfIPropriale. As \,IisclIssro abo"... in thlS C:l$C:
       !he ind.ividual iludcms were DOt harmed: they Wl'Il.' DOl impropL-r:ly rcc:ruiu:d, they were qualified
       for me proy.un5 in "ll1eh Iltey enrolled. and lhey I'CC'ci\'ed .he educntion they expecled. The
 I     Unh-ersn)' believes;. is m)l logical 10 asses~ ~ li4bihlycqu~llo all of III" Title IV funds those
       SIUlkrl!S reed\oJ. Thai miliin II\: 1m appropriate penally if the school did not deliver tbe
       edUC~II\ln it )Homised or if the mulent5 never enrolled or if the Kbool h:wi be~ ciled for muhip!~
       !0I1&-1l3!ldlng ~io]::uions. Bmtllat t, not thc \:lISC btTC.

                A more appropriate penalty in the circ:ulJI5WU:~ of this t:lSC is an administrnln·c fin~, a
 I     pt'naily aulhori~ bi S..-ction 417{c) of the HEA, 20 U.S.C. § I094(c). Pursuanllo the
       D;.:partmcul', regulaliollli, a fine may be IiSSCsscd for a vi.... l:uioll of alll' provision of th~ II EA or
       :lny implemcll1inl: ",sulnlion. )·1 C.F.R. § 668.84(a). Since Il,is "101 a sinwJc mislake. a smgle
 I     line f:lthcr !ban the '<"{IlI)mcnt of Tille IV funds r.:ccivcd by over 1,000 individual sludcntl is a
       more J:pproprilU;;- ~Jty.

                 Funller,the 5tallllC and TC]!ulalion both providc IMllhe Ocplltlmcnt may impose a line of
       up 10 S2S.000 fOl"" c:I~h violauon. Th~ Uni'·crs;I>·'S implemenlnlion of B bonus plan for a single
       ye:tr should bc viewed as a single vi01nlion orlhc IlEA. Thi~ would be eonsisletU witb tbe
 I     DepartJncnfs prior prnclic~ fur a ,·iola[ion of the incenlive compensalion provision. For
       .:x:unplc. \lee Ihe Ca3C of Be! Kg InSlflutc of Anjmal Technology. in "bieh an ~udil of WI
       !!-Choal·, Titl~ IV prog,;m\S ",",,,.oJcd that thI: insmulion had paid impl:rrnissibk inocnl;vC
   p")men15 to ~dmissions person~l based on the number OfSludcnl1 the}' enrolled. Aecoroins \0 

       the Department") l~[[..r mfomnng ~ school of tlh: Ii...., the in:;lilution paid $43.080 10
       Impermissible ~dditional cOmpl:lUDliun in one year. Th~ le!lcr does nOl indicate how Ulany ycars
       \.his pa)l!\Cl1I plan was In eITeel Thc Dcpa"menl ehal1lclcnzcd thi5 proe1te~;iS a {mgle violalion
       and as.sessed a line ofS2S.0Q(J. Sec cOlTCspond~"Ilcc from the Department to the school. anuchcd
I~     as Ex.hibil G.

                The Uni\crsily behc\e5 llut ifthc OIG is JlOinj; 10 recurnrncud Dpenalty in this case, then
       the Rme Iype Of1lSOCSliment 5bou.ld be made as in lhe Bel R~a InstilUlc C:lSC. Compared 10 &1
       Rc:a IllS1iIU\(!, lilt' Univ=ily of l.lI Verne's ,·ioI3Iion appl:3r!< ccnrunJy no mOre signific;ml. The
       Un"·cn;ity" s bonus plan WI..> tn place for ~ single ) ~~r: il i$ ullcb". if Bd Rt'a -s plan WlIS in "bee
       jor one >'l!!U" or mulliplc years. The Uni ...e",ity sclf-lenniJ tJlcd lIS bonus pl:!.lI; il appears Bel R.:a
       m~y have continual ,IS bonus plan until the violation"':15 ideUlilicd by the ludit. The University
       paid 570,-409 in bonust'S 10 'l5 rttruitCl""S for the Y""~r in queslion; Bel R"" made p~ymcnlS of
       S43,08O In comparison 10 tlw: size of tbe institution. !be Uni,eBiI)"s botltlll pa}nlenl$ "'1:,,,
                                                -                                    -
          M._ Glon:! P,lo!!i
         l'~~~ I~

         nllnll~tuk eornp;ln:d 10 11>u5i' paid hr Del Rca: ~ linh'enily Qi L;l Verne,,-:as Il/1 ilUluuliOll of
         apl'ro,"im~Ldy i,OOO "udents dunng Ihe year- II p~;d ilS bonusei; by tomr.lSI. Bel ReJ was un
         mllllUIIU', of 280 5tudenl$, acoor<lins 10 Ibe 1995 Higher Educal i"D Djr«!Ory (set' E~hibi l H).
         So Iht m"~mlude of Ihe viola lion reluli"c 10 the size of Iht> jlll;lilul;on \\'lI5 much gre;J1~r ror Bel
                   For lho:K 19S011lI, !be Uni"ersily heliC'"t'!I Ihal ira fine is auessed apinSI it. th:Il fine
         IihoulJ be no I~('f than lhe fine ~ agaiml Bel Rc;I lnstnute for the SlIme "jOI~lioIL If
         thell: Ii gOIlI~ In be u Ilue. it should 11<: 00 Inrger Lhan 525,000.

I	                                 2. Estimated! PH 10 Gn'"nnmen! Oil Studcm L=n.

                  The UnL\cnily belle> es Ihal no fuulI1ciaJ penally shouJd be :lS'cucd againsl It al all. OJ" at
         IDllIiII line of a limitcU ~UlounL H()\,c\'('f. jf the OlG believes il mUSI recomml!nd a liability 10
         thl: DcI':u1mcn!' s Office IIf Fet!~ral Studrnt Aid based 011 !h~ Tille IV funds tccei,'~d by th~
         stuJ~nts wlro started in the ~itied pl'1lgTDms at tM Univemlydunng 1999·2000. Ihen the
         Uni,cmlr r"<JUesD that th" 010 awly the Ot'p3l1mt:n!' $ "E5!inmcd Loss fllrnmb." in selling the
I	       Habiluy for thc FFEL Loans.                                                                                        I

                    Undrr lilt Estimated lilA Fol1t1ula (lOtnetimes referred III as Actual lIIss Fllrnlula), the
         Dt:pannlcnl dlles nlll u,'tjuire J!1 in&litulion tu repay nil of the ineligible FFcL 11I3n fund. 10
         Icll!lcl'$, :md also 10 p.'~ the jl1t~"I'<.'SI and spl.'Ci~1 allowlli1ee CO~I' On subsidized FFEL 101U1S 10 thc

         Depar1mcm, lI!i!he Drnft Audit Report rt'COnunendi. Rlllhc:r, Ihe Dtpa"mcnl has !Ie"eloped ~n 

I	       E5lim:m~tl Lo:.s Formul:!, winch cstim31es the: atluallOS$IO lhe go.'cmme", 011 !hose loans. The
         Formula U5e~ the in.lilutiun·s FFEL cohost default FolIe. and ~\Un~')' Ihal portion of Ihe loans not
         goinl; .nllJ default Will be repaid by Lhe hOrTOwcrn, $0 Ih~1 ~ liahililY is :lncssed only for Iht
         disalloll cd FFEL nrnQllnl multiplied by the ddauh FolIC. Added III thnl umoun! is u cmleulation of
         inltreSt and spedal ~llllwal1Ce pa)lltCUL5 ou the ponioo IIf Ihc disa1!o\\'ed ll1:utS thaI is 5Ublidized
I~ 	     loans. 'tlte combin:tlion of those wnounL5 i. the tOlal1i.bilily for FFEL loans. and it is 1111
         pa)':tbk: to the Oep:u1mtnl.

                 The Dep.,nmC11\·~     omc~ ufSlluJ~n! Fi/UlMi~1 Assisw.n~e        h:u 'Illled Ihm the
         D~p~rlll1cnl's ~\ldlL re~(>!u!i"n slnfT must (JJe the I1<;tual 1()SS methodo!ui!.Y ",hell oJi5ll.llu,," inllUU
         in~It!tlbl~ FFEL loans. See AkB Proco:tiure 1'94-10 ('Feb. 1994). albCho:ti herelO It! E.dlibit I.
         Because tht Department will;tS#S5 FFEL Jo,m Jiabilit)' utilizing the Estimaled Loss Fomluh. the
         l'm,cllily requew IMI tI«: OLG utiliu Ut~\ fonnub in m.alint iL5l'ttOJ\1mcmled penmhy
                    The FFEL liabihty ligure ofS7.284.819 pro~ided in Ihe Dran Alldit Repon nced5 \0 be
         ,C'o'iso:ti downwIlrd by a 101a\ of 51 55.&38, based 011 Ihe adjusuncnts and W=UOIlS dcscnl:io.'d
         ;tho'c in Section 1.0. ~11Ci\"cs, rc~i~ FFEL figure ofS6.52S,9SI The Uni''miity hils
         nlnllaled Utal for the remu1IllIl1l stodenl.5, 54.071.261 of tit", FFEL loans "'U '" Ih~ fumt of
         unsub.,dlzed lo:m.s. Subtracling UtUI amouut from the ((Ilal re\'i~c\l FFEL hability k.I\'CI Lhe
         r"mJIlIlIIg $1 ,4 57,720 as $lIbsidilcd 10Ms.


       Ms. GI0ria Pilollj
       :\pri 126, 20112 

       Pug\! 1."1 

                In cl.1mpkling Ihe Estimated Actual Loss worksheet, the Dcprutmcnl has stlled that
       unsubsidi?.e:J FFEt Jaan3should be tn:ated ns SLS loans in tll~ fonnuJa. Thl! Universitv's must
       r~("e!lt FF[L eonon detaulL rate (llSl'ill year 1999) is 2.9%•. Applying tile 5lnndard fonll"uill to
       these figures yidds an l!stimutcd aClUal !oss ior FFEL 10al1s ofS834,551. Sc(" (;(,llnpJeted
       Es~im.llcdAclual Loss Worksheei. a copy of\\l!idl is provided as Exhibit J.

               ThereIO[C'. applying lite Estimated Loss Formula to the FFEL portion ofllle Joan liability
       identified in the D!-afi Alldit Repon (as correcled) results inn loalliiOlbilily QfSS34.55L pay.lble
       to th~ Dcpartmcul. Tn additiOJ1, the Pcll Grallt iiOlbility ()fS422.2IG referenced in the Draft Audit
       Report should be reduced by the S26,486 in Pell GraufSdescribcd u~Scction T.D nbo\Tc, for a
       revised Pel! GmTllliahilitvofS395,730.
                                         .   ~

                 For all uflhc reaSOllssct furtb abovt:, tlle University uocs not bclicn: that the FFEL <Ind
       Peli GrJ.1l1 flmds recei ved by lhe- U                            O!J+ SeE students should be the basis for assessing liabiJjty
       in litis cast:!. However. ifthe01G believes it nUl..-:l utilize thm aplm.Hlchin recommending
       fiabWIY to tbe Denarlment's Ofi.ke of Fc:dcrnl Student Aid, then the Ulli"C'rsityn~qiles[s that the
       adjllsI~J liability ligures nnd UHl Eslimatcg Actual Loss Wqrksllcet he utilized, producing a
       combined FFEL and PellGrant liability <inIount of $1.230.281.
                                                                                *         *
                 The University appreciates theOIG'sconsidcrationofn11 of th·e Tl1fo!1lUllion and points
                                                               infonlUuion at this time, pJeasedo flOl
       set forth in this leUc!. rfwc can provide any auditiollal
       hesit;J1(; it.! c'imt,lcl us.

i                        Sincerely.
~: 1

                         Spt:cial Counsel
                         University on.1l Verne


       cc (w!cxhlhlts); PhlTip A. HmvkeYT Executive Vic~ Pn:.:iklclll

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                                    RE I'ORT 1) ISTRJUlTfION LI~"           

                              CONTROL NO. EO-OIG/A09-COOO-I 

                                                       En ,\clion Official

Mr. PhIlip Hawkey                                      Ms. Cl1lltlxc Kane
EAc:cuuvc VIce Prc:.'Idc:nt                            Acting Chief Oper:mng Officcr
Um\erslly of 1...1 Vc:mc                               Fcder:ll Student Aid

                                  Olhfr ED OmcialYl\larr (electronic ropy)

Audil wison Officer                                    Press Secm~ry    

r~ral Snxlenl Aid                                      Ofra of Public A[(lil$ 

Com:spondence Control                                  AniSlanl Gwcr"l Coun!lel
OffICe of Gcnen.1 Counxl                               Offocc of the General Coun..,1

Auimn! Sern:ury                                        Depuly Secrcwy
OffICe of Le,",Slahon .00                              Offoce of the Deputy S«rc:I:ory
    Coo£<C5sion~1    Arrmin

Aui.tanl Sccrewry                                      Chief of St. ff
Office of IntcrIlIlVC"lItlC~lal                        Office of the Secrcl~ry
    and lmcro.~",>cy A(fdi"

Din:ctDf                                               Undi...- Sccret:ory
f-inaKi.ulmprovcmcnl and                               OffICe of the Under .5un:t:ory
    Post Audil Operalions
OffICe of the Chief FinMICiml OffICer

I'o5t Audil Group SuperviiDr                           Director 

Fin;lIIci.llmprovcnv:ntlllld                           Ofroce of Publie Aff.il$ 

    I'mt Audi, Opcro.tions
Office of the Chief Financial Off,",

IOO.m:t COIl Grou.p Supr:nuor                          Case Oin:ctor-Sm Franc;KO
firwri>llmprovcmr:'" IIIXI                             Case l>bn3.gcoment and (henighl
  PoQ Aud,1 Opcl1lliom                                 Feder.!1 Student Aid
orra of the QbefRn:lnc;.;,1 Offocer

Western Al.sociation of Sehooilioo Collej:CS.          California PIlSt$ccond.ry E!ltJoC;luon CommiJ.llion
Aox~itinll Commiulon for Senior College",:and          I:lOJ J SUUt. Suite SOO
Unh-cnities                                            SXf.lIlll:nto. Californ.a 95814-2938
9gS Atwllle A'-.::nllC. Su.t.c 100
AI:unnJ.:a. Cmlifomlll 9-I~1