oversight

TUI University's Administration of Higher Education Act, Title IV Student Financial Assistance programs.

Published by the Department of Education, Office of Inspector General on 2009-08-05.

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

                        UNITED STATES DEPARTMENT OF EDUCATION
                                        OFFICE OF INSPECTOR GENERAL

                                                                Audit Services
                                                                Sacramento Region



                                             August 5, 2009

                                                                     Control Number
                                                                     ED-OIG/A09I0009


Dr. Yoram Neumann
President and Chief Executive Officer
TUI University
5665 Plaza Drive, Third Floor
Cypress, CA 90630-5023

Dear Dr. Neumann:

This Final Audit Report, entitled TUI University’s Administration of Higher Education Act,
Title IV Student Financial Assistance Programs, presents the results of our audit. The purpose of
the audit was to determine whether TUI University (TUIU) had policies and procedures to ensure
that Title IV, Higher Education Act of 1965, as amended (HEA), programs were properly
administered in accordance with applicable requirements of the HEA, Federal regulations, and
U.S. Department of Education (Department) guidance. Our review was limited to student
eligibility for Title IV funds at the time of disbursements, identification of withdrawn students,
calculation of return to Title IV amounts, and timeliness of returns of Title IV funds to lenders
and the Department. Our review covered TUIU’s policies and procedures for the period
October 16, 2007 (date TUIU became a stand-alone institution) through June 20, 2008
(scheduled end date for TUIU’s Spring 2008 session).




                                      BACKGROUND


TUIU is a proprietary school, located in Cypress, California, that is accredited by the Western
Association of Schools and Colleges. TUIU, originally known as Touro University
International, was established in 1998 by Touro College, a private, non-profit institution of
higher education located in New York. TUIU was recognized by the Department as a
stand-alone institution on October 16, 2007. On October 31, 2007, Summit Partners, a private-
equity firm located in Palo Alto, California, and Boston, Massachusetts, purchased a majority
interest in TUIU. Two affiliated Summit Partners’ funds hold an ownership interest of 85
percent. The remaining ownership interest is held by TUIU’s President/Chief Executive Officer
Final Report
ED-OIG/A09I0009                                                                      Page 2 of 54

(10 percent) and Touro College (5 percent). The Department required TUIU to provide a letter
of credit in the amount of $2,750,142 since the new owners – Summit Partners – did not have
two fiscal years of audited financial statements. TUIU has educational programs in business
administration, health sciences, information systems, and education and offers bachelors,
masters, and doctoral degrees. The educational programs are delivered using computers via the
internet and fixed media such as CDROMs. In Spring 2008, TUIU had an enrollment of about
8,300 students. TUIU’s records, as of June 3, 2008, showed that, since becoming a stand-alone
institution, TUIU had disbursed about $8.6 million in Title IV funds to a total of 963 students.
The $8.6 million comprised about $8.2 million of Federal Family Education Loans (FFELs) and
$358,000 of Federal Pell Grants (Pell Grants).



                                     AUDIT RESULTS


TUIU did not have adequate policies and procedures for ensuring student eligibility for Title IV
funds at the time of disbursement and for identifying students who had withdrawn from the
institution. We estimated that $923,379 of the $8.6 million in Title IV disbursements made to
students for the Fall 2007, Winter 2008, and Spring 2008 sessions was either disbursed to
ineligible students or not earned by students who withdrew from the institution.

TUIU had policies and procedures for performing return of Title IV calculations, but due to the
low number of such calculations, we did not have sufficient evidence to conclude that the
procedures were adequate to ensure calculations would be consistently performed in compliance
with the requirements. Also, we did not have sufficient evidence to assess whether TUIU
procedures were adequate to ensure that amounts identified in return of Title IV calculations
would be consistently returned on time to lenders and the Department.

We identified other deficiencies in TUIU policies and procedures concerning academically
related activity, length of an academic year, tuition discounts, loan periods, and training.
Based on the collective deficiencies noted, we concluded that TUIU had not demonstrated the
capability to adequately administer the Title IV programs.

A draft of this report was provided to TUIU for review and comment on March 2, 2009. We
received TUIU’s comments, along with additional documentation, on May 11, 2009. In its
comments, TUIU disagreed with the findings and recommendations. We have summarized
TUIU’s comments at the end of each finding. We have also provided our response after the
summary of TUIU’s comments. Based on TUIU’s comments and additional documentation
provided, we revised parts of our original findings and recommendations.
Final Report
ED-OIG/A09I0009                                                                                       Page 3 of 54

Except for personally identifiable information (that is, information protected under the Privacy
Act of 1974 (5 U.S.C. § 552 a)), the entire narrative of TUIU’s comments is included as an
Enclosure to this report. All personally identifiable information mentioned in TUIU’s comments
was replaced with bracketed text. Because of the voluminous nature of the exhibits to TUIU’s
comments and the personally identifiable information within, we have not included them in the
Enclosure. Copies of the exhibits to the University’s comments, less the personally identifiable
information, are available on request.


FINDING NO. 1 – TUIU Did Not Have Adequate Policies and Procedures to
                Ensure Student Eligibility and Identify Students Who Had
                Withdrawn

TUIU had deficiencies in its policies and procedures that resulted in 1) improper disbursements
of Title IV funds to students who did not become eligible for the payments until after the
disbursements, 2) improper disbursements to students who had not begun attendance at the time
of the disbursement, and 3) failure to return Title IV funds for students who ceased attendance
(withdrew) without providing formal notice to the institution. TUIU improperly disbursed Title
IV funds because it erroneously defined the academic calendar for its educational programs as
term rather than nonterm and did not ensure that students were participating in academic activity
at the time of the disbursement. TUIU failed to return Title IV funds to lenders and the
Department for withdrawn students because it did not have a policy covering withdrawals of
students who did not provide notice to the institution or procedures for identifying students who
had withdrawn without notice. Based on our review of TUIU records for a random sample 1 of
students, we estimated that $923,379 of the $8.6 million of Title IV disbursements made to the
963 students enrolled during TUIU’s Fall 2007, Winter 2008, and Spring 2008 sessions was
either disbursed to ineligible students 2 or not earned by students who withdrew from the
institution.

TUIU Policies and Procedures Were Not Designed for
Educational Programs with a Nonterm Academic Calendar

TUIU mistakenly concluded that it was delivering educational programs using a nonstandard
term academic calendar. TUIU was, in fact, using a nonterm academic calendar for its
educational programs since the institution allowed students to complete courses at their own pace
and its academic schedule contained overlapping sessions.




1
 We reviewed TUIU records for a sample of 98 students who were randomly selected from the 963 students
enrolled during the Fall 2007, Winter 2008, and Spring 2008 sessions and received Title IV disbursements for the
period October 16, 2007 through June 20, 2008. The Objectives, Scope, and Methodology section of the report
provides further information on the sampling universe and sample selection methodology.
2
 The estimate does not include Title IV funds disbursed to students who were ineligible at the time of the
disbursement, but became eligible for the funds after the disbursement date.
Final Report
ED-OIG/A09I0009                                                                                      Page 4 of 54

For purposes of the Title IV programs, there are three basic types of academic calendars that an
institution can use to offer educational programs: standard term, nonstandard term, and nonterm.
The 2007-2008 Federal Student Aid Handbook (FSA Handbook), provides the following
guidance on term calendars—

        Generally, a term [standard or nonstandard] is a period in which all classes are
        scheduled to begin and end within a set time frame. However, if these periods
        overlap within a program, they may not be treated as a term-based program for
        Title IV purposes.

The FSA Handbook lists the characteristics of a nonterm calendar for institutions that measure
academic progress in credit hours.

         A program that measures progress in credit hours is considered to be using a
        nonterm calendar if it has:
            • Courses that do not begin and end within a set period of time,
            • Courses that overlap terms,
            • Self-paced and independent study courses that overlap terms, or
            • Sequential courses that do not begin and end within a term.

TUIU defined the academic year for its educational programs as 48 weeks of instruction 3 during
which full-time students earn 24 credit hours for undergraduate programs and 16 credit hours for
graduate programs. The educational programs are delivered in sessions with scheduled
beginning and end dates.

                                   Table 1: TUIU Academic Session Dates
                                        (As posted on December 19, 2008)
                         Session             First Day of Class          Last Day of Class
                  Fall 07                   October 8, 2007            December 21, 2007
                  Winter 08                 January 7, 2008            March 21, 2008
                  Spring 08                 April 7, 2008              June 20, 2008
                  May 08                    May 27, 2008               August 1, 2008
                  Summer 08                 July 7, 2008               September 19, 2008
                  August 08                 August 18, 2008            October 31, 2008
                  Fall 08                   October 6, 2008            December 19, 2008
                  November 08               November 17, 2008          January 30, 2009
                  Winter 09                 January 12, 2009           March 27, 2009
                  February 09               February 16, 2009          May 1, 2009

Students generally enrolled in one or two courses per session. Courses were designed with six
modules; each was two weeks in length. Each of the first five two-week modules required
submission of three assignments – a case assignment, a component of a “session long” project,
and participation in a posted question (threaded discussion). Students submitted the completed
“session long” project at the end of the course. The sixth two-week module was designed to
3
  As discussed in Finding No. 2 of the report, TUIU improperly included weeks in its definition of the academic year
that did not contain scheduled instruction or examination.
Final Report
ED-OIG/A09I0009                                                                                          Page 5 of 54

provide one week for students to complete and submit a course reflection discussion paper and
one week for instructors to prepare the course grade. The reflection paper was not required or
graded as part of the overall course grade.

TUIU’s educational programs met the characteristics of a nonterm academic calendar described
in the FSA Handbook. TUIU allowed students to enroll in courses almost every month and
complete assignments at their own pace. TUIU did not require students to begin or end courses
within the posted dates. TUIU allowed students to request an additional six weeks to complete
the course. If the request occurred prior to the posted end dates of the course, the extension was
automatically granted. After the initial six-week extension, additional extensions were granted
based on individual student requests. Our review of academic records for the 98 sampled
students found that the students completed about 59 percent of the sessions after the scheduled
last day of class. 4

In addition, as demonstrated by the session dates in Table 1, TUIU’s educational programs were
scheduled for delivery using overlapping sessions – one of the characteristics of a nonterm
academic calendar. During our audit period, the scheduled May 2008 session overlapped the
scheduled Spring 2008 and Summer 2008 sessions. The frequency of scheduled overlapping
sessions increased after our audit period. Also, TUIU allowed students to start courses in the
next session while completing the courses in the prior session. Thus, while TUIU had scheduled
session start and end dates for most sessions that did not overlap, the sessions actually did
overlap because students were taking courses in more than one session at a time.

Since TUIU’s educational programs were nonterm, TUIU should have applied the Federal
regulations and guidance applicable to nonterm educational programs when administering Title
IV programs. The type of academic calendar used for an educational program is a key factor in
determining the timing of payments made under Title IV programs as well as student eligibility
for the payments.

    •    The type of academic calendar determines the payment periods in the academic year. 5
         Title 34 C.F.R. § 668.164(b)(1) requires Title IV program funds to be made available on
         a payment period basis and disbursed at least once each payment period. For an
         educational program offered under a term calendar (standard or nonstandard),
         Title 34 C.F.R. § 668.4(a) states that the payment period for scheduled disbursements is
         the academic term (i.e., semester, trimester, quarter, or nonstandard term). For an
         educational program offered under a nonterm calendar, 34 C.F.R. § 668.4(c) states that
         the payment period for scheduled disbursements varies depending on the length of the


4
  TUIU’s records showed that the 98 sampled students were enrolled in a total of 251 sessions for the Fall 2007,
Winter 2008, and Spring 2008 sessions. At the time of our review, the students had earned a passing grade in at
least one class for 167 of the 251sessions (i.e., completed the session for Title IV purposes). The students completed
the session after the last scheduled day of class for 98 of the 167 sessions (59 percent).
5
  Title 34 C.F.R. §668.32(a)(1)(i) states a student must be enrolled, or accepted for enrollment, in an eligible
educational program to receive funds under Title IV programs. The FSA Handbook, states that each eligible
educational program must have a defined academic year. Title 34 C.F.R. § 668.3 sets forth the minimum
requirements for an academic year.
Final Report
ED-OIG/A09I0009                                                                                       Page 6 of 54

         program and weeks of instructional time (i.e., academic year or less, multiple of a full
         academic year, etc.).

    •    The type of academic calendar also impacts a student’s eligibility for disbursements
         under Title IV programs. The regulations defining payment period for educational
         programs at 34 C.F.R. § 668.4 also establishes the conditions that a student must meet to
         complete the first payment period in an academic year. For educational programs offered
         under a nonterm calendar, students must successfully complete both the weeks of
         instructional time and the credits in a payment period in order to progress to the next
         payment period and be eligible for additional Title IV disbursements. For educational
         programs offered under a term calendar, the student does not have to successfully
         complete the coursework to move to the next payment period.

Because TUIU improperly applied rules applicable to its educational programs using a
nonstandard term academic calendar, it did not develop policies and procedures for nonterm
educational programs requiring that students complete both the weeks of instructional time and
the credits in a payment period prior to progressing to the next payment period. TUIU scheduled
four disbursements of Title IV funds over the period of an academic year – one disbursement for
each session. Thus, in an academic year with the minimum of two payment periods, students
had two scheduled disbursements in the first payment period and two scheduled disbursements in
the second payment period. TUIU’s policy was to make disbursements 30 days after the
scheduled start date for the session. TUIU did not have a policy or procedures requiring
financial aid staff to confirm that the student had completed the required weeks of instructional
time and credits prior to notifying the bursar 6 to disburse payments in the second payment
period. As a result, TUIU improperly disbursed Title IV funds to students for the second
payment period before the student had completed the coursework (weeks of instructional time
and credits) to be eligible to receive the funds.

TUIU’s Procedures Did Not Ensure that Students
Were Participating in Academic Activity at the
Time of the Title IV Disbursements

TUIU did not have policies and procedures in place to confirm that students had begun
attendance in the session prior to making Title IV disbursements. The FSA Handbook lists the
student eligibility factors that an institution must determine and document before disbursing Title
IV funds. One of these listed factors is that the institution must confirm “if the disbursement
occurs on or after the first day of classes, that the student has begun attendance.” As we noted
earlier, TUIU disbursed Title IV funds 30 days after the scheduled start of the session. Thus,
TUIU was required to confirm and document that the student receiving the disbursement had
engaged in academically related activity for one or more of the courses enrolled in for the session
prior to making the disbursement.




6
 A bursar is a financial administrator in a school or university. The Bursar Office at TUIU is part of the Finance
Department. The TUIU Finance Department is responsible for managing the financial resources of TUIU.
Final Report
ED-OIG/A09I0009                                                                                    Page 7 of 54

This requirement is specified for disbursements made under the FFEL Program at
34 C.F.R. § 682.604(b)(2)(i), which states—

        [A] school may release the proceeds of any disbursement of a loan only to a
        student…if the school determines the student has continuously maintained
        eligibility in accordance with the provisions of § 682.201 from the beginning of
        the loan period for which the loan was intended.

Pursuant to 34 C.F.R. § 682.604(d)(3) and (4), if the student withdraws prior to the first day of
class or if the institution is otherwise unable to document attendance during the period of
enrollment, the institution must return loan proceeds to the lender. Also, the institution can only
make a FFEL disbursement to a student that temporarily ceases to be enrolled if the institution
documents that the student has resumed enrollment. Title 34 C.F.R. § 682.604(b)(2)(iv) states—

        If, prior to the transmittal of the proceeds of a disbursement to the student, the
        student temporarily ceases to be enrolled on at least a half-time basis, the school
        may transmit the proceeds of that disbursement and any subsequent disbursement
        to the student if the school subsequently determines and documents in the
        student's file—
             (A) That the student has resumed enrollment on at least a half-time basis;
             (B) The student's revised cost of attendance; and
             (C) That the student continues to qualify for the entire amount of the loan,
        notwithstanding any reduction in the student's cost of attendance caused by the
        student's temporary cessation of enrollment on at least a half-time basis.
        [Emphasis added.]

For programs other than the FFEL program, 34 C.F.R. § 668.21(a) provides for the
treatment of Title IV grant and loan funds if the student does not begin attendance at the
institution. 7 When an institution has made a disbursement of Title IV funds to a student
that did not begin attendance in the payment period, the institution must return the
Title IV funds that were credited to the student’s account for that payment period or
period of enrollment at the institution.

TUIU did not have policies and procedures to adhere to the above requirements, which are
applicable to both term and nonterm educational programs. TUIU used an in-house developed
integrated software package called CourseNet Management Student System (CNSSS)8 to
manage the following three areas:

    •   Student Services – Student records related to admissions, registration, transcripts,
        financial aid, and student accounts.
    •   CourseNet – Course delivery, including assignments and threaded discussion, grading,
7
  On November 1, 2007, the Department amended this provision to apply to all Title IV loan programs, effective
July 1, 2008, after the conclusion of our audit period.
8
  Documents prepared by students on the case assignments and “session long” projects are maintained in a separate
system.
Final Report
ED-OIG/A09I0009                                                                                        Page 8 of 54

         and monitoring of academic activity.
    •    Course Development – Course creation and modification.

Prior to making a Title IV disbursement, TUIU’s financial aid staff reviewed information in the
CNSSS Student Services module to confirm that a student’s status was shown as “enrolled.” If
the student was shown as enrolled in the session, the financial aid staff then instructed the bursar
to disburse the Title IV funds. The financial aid staff did not review the academic activity in the
CNSSS Course-Net module or contact the academic staff to determine if the student had begun
academic activity in the scheduled course(s). The Course-Net module contains the information
on students’ ongoing academic activity that is needed to assess students’ eligibility at the time of
the Title IV disbursements (i.e., dates that the student submitted each two-week module
assignment and participated in the discussion question, dates that the instructor graded the
assignments, assignment grades, and course grades). Because TUIU financial aid staff did not
confirm students’ academic activity, TUIU disbursed Title IV funds to students who were not
eligible (had not begun attendance) at the time of the disbursement.

TUIU Did Not Have Policies or Procedures for
Identifying Students Who Had Withdrawn Without
Providing Official Notification to the Institution

While TUIU officials contacted students who had ceased participation in their courses, TUIU
had no policies to address circumstances when students ceased attendance without notifying the
institution and no procedures to identify such students for purposes of performing return of
Title IV calculations. 9 Institutions are required to perform return of Title IV calculations when a
student begins, but later withdraws, during the payment period or period of enrollment.
Title 34 C.F.R. § 668.22(a)(1) states—

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

Title 34 C.F.R. § 668.22(j)(2) requires that an institution have a mechanism in place for
determining when a student withdraws without notice.

         An institution must determine the withdrawal date for a student who withdraws
         without providing notification to the institution no later than 30 days after the end
         of the earlier of the—
               (i) Payment period or period of enrollment, as appropriate, in accordance
                   with paragraph (e)(5) of this section;
              (ii) Academic year in which the student withdrew; or
             (iii) Educational program from which the student withdrew.

9
  TUIU had policies and procedures in place for students to provide official notification of their withdrawal from the
institution. TUIU also had procedures for performing return of Title IV calculations and returning Title IV funds for
students who had provided official notice of their withdrawal.
Final Report
ED-OIG/A09I0009                                                                       Page 9 of 54

Institutions are not required to use a specific procedure for making the determination. However,
the Department did provide guidance in Dear Colleague Letter (DCL) GEN-04-03, issued
February 2004 (revised November 2004). The guidance is reiterated in the FSA Handbook.

       An institution must have a procedure for determining whether a Title IV recipient who
       began attendance during a period completed the period or should be treated as a
       withdrawal. We do not require that an institution use a specific procedure for making this
       determination.

       If a student earns a passing grade in one or more of his or her classes offered over an
       entire period, for that class, an institution may presume that the student completed the
       course and thus completed the period. If a student who began attendance and has not
       officially withdrawn fails to earn a passing grade in at least one course offered over an
       entire period, the institution must assume, for Title IV purposes, that the student has
       unofficially withdrawn, unless the institution can document that the student completed
       the period.

       In the absence of evidence of a last day of attendance at an academically related activity,
       a school must consider a student who failed to earn a passing grade to be an unofficial
       withdrawal.

The FSA Handbook reiterates the guidance on determining the withdrawal date for schools that
are not required to take attendance.
       For these withdrawals, commonly known as dropouts, the withdrawal date is the
       midpoint of the payment period or period of enrollment, as applicable, or the last
       date of an academically related activity that the student participated in.

Our review found evidence confirming that TUIU contacted students who had ceased
participation in their courses. The Vice President of Academic Affairs explained that instructors
periodically sent a list of non-participating students to the Dean of the School. The Dean of the
School submitted the list to the Vice President of Academic Affairs. The Vice President of
Academic Affairs either contacted the students or instructed the Academic Advisor to contact the
students to discuss why they were not participating and encourage them to continue participation.
TUIU did not have written procedures for this process. TUIU also did not have procedures to
identify those students who did not resume their academic activity as students who had
withdrawn without notice to the institution.
Final Report
ED-OIG/A09I0009                                                                     Page 10 of 54

TUIU’s Policies and Procedures Resulted in
Improper Disbursements and Failure to Return
Title IV Funds for Withdrawn Students

As a result of its deficient policies and procedures, TUIU improperly disbursed Title IV funds to
students who did not become eligible for disbursements for the second payment period until after
the disbursements were made, improperly disbursed Title IV funds to students who had not
begun attendance at the time of the disbursement, and failed to return Title IV funds for students
who ceased attendance without providing formal notice to the institution.

We reviewed TUIU’s records for the 98 students sampled from the universe of 963 students who
were shown on the TUIU-provided data as having received about $8.6 million of Title IV
disbursements for the Fall 2007, Winter 2008, and Spring 2008 sessions. (The data included
student information for the period from October 16, 2007 through June 20, 2008.)
The 98 students received $980,113 of the $8.6 million of Title IV disbursements. For each
sampled student, we reviewed CNSSS information for the Fall 2007, Winter 2008, and Spring
2008 sessions to obtain the following: 1) date the student began academic activity, 2) dates the
student participated in academic activity, 3) dates of the Title IV disbursements, 4) grades
received for the courses in each session, and 5) date of the notice of withdrawal, if one had been
provided by the student to TUIU. From this information, we concluded—

   •   Sampled students were ineligible for Title IV disbursements when the CNSSS
       information showed the students had no academic activity for the session. TUIU is
       required to return the Title IV funds for these disbursements to lenders and the
       Department, as appropriate.

   •   Sampled students were ineligible for Title IV disbursements when the CNSSS
       information showed no academic activity for the session prior to the date of the
       disbursement. However, in such cases, the CNSSS information showed that these
       students engaged in academic activity after the disbursement. Thus, the students
       subsequently became eligible for the disbursement. No Title IV funds need to be
       returned for these improper early disbursements.

   •   Sampled students were ineligible for Title IV disbursements when the CNSSS
       information showed students had not completed half of the credits and half of the weeks
       of instruction in the academic year prior to the date of disbursements for the second
       payment period. The CNSSS information also showed that these students engaged in
       academic activity after the disbursement date and completed the credits and weeks of
       instruction sufficient to qualify for a second disbursement. Thus, these students also
       subsequently became eligible for the disbursement and no Title IV funds need to be
       returned for these improper early disbursements.

   •   Sampled students were identified as withdrawn from the institution when the CNSSS
       information showed that the students had failed all the courses in the session and the
       students ceased academic activity. TUIU was required to perform a return of Title IV
       calculation for these students to determine the amount of Title IV funds that the student
       had not earned and return amounts to lenders and the Department, as determined by the
Final Report
ED-OIG/A09I0009                                                                                     Page 11 of 54

        calculation. To calculate the unearned Title IV funds for withdrawn students, we applied
        the guidance provided in DCL GEN-04-03 for students who withdraw from a nonterm
        program where the completion date of the period is dependent on individual student
        progress.

Table 2 provides the results of our review of TUIU’s records for the sampled students. Of the
98 students in our sample, 73 students (74 percent) had improper disbursement(s) and/or lacked a
return of Title IV calculation for the Fall 2007, Winter 2008, and/or Spring 2008 sessions.

                                      Table 2: Results of Student Sample
                                                         Number of           Title IV Funds
Student Sample                                           Students in          Disbursed to
                                                           Sample          Students in Sample
      Totals for Sample                                      98                 $980,113
                                                         Number of
                                                                              Title IV Funds
                                                        Students in
                                                                               Disbursed to
                                                     Sample Identified                             Title IV Funds to
Type of Error                                                              Identified Students
                                                      with the Type of                               Be Returned
                                                                             for Sessions with
                                                      Error in One or
                                                                            the Type of Error
                                                       More Sessions
      Ineligible for disbursement–Student did
A                                                             27                $142,669           $142,669(b)
      not attend in session
      Return of Title IV–Student withdrew
 B                                                            30                $194,892           $161,852 (c)
      without providing official notification
      Totals (a)                                              50                $337,561           $304,521
      Early disbursement–Student not
 C    eligible until after the date of the                    42                $254,397(d)
      disbursement
      Totals (a)                                              73                $557,632
(a) Unduplicated number of students and amounts of Title IV funds. A student may have different types of
    errors (A, B, or C) in different sessions (Fall 2007, Winter 2008, and Spring 2008). Also, a student could
    have both an early disbursement error (Type C) and return of Title IV error (Type B) in the same session.
(b) The $142,669 consists of $7,259 in Pell Grant funds and $135,410 in FFEL disbursements that TUIU is
    required to return to the Department and lenders, respectively.
(c) The $161,852 consists of $3,704 in Pell Grant funds and $158,148 in FFEL disbursements. TUIU is
    required to return $647 of the Pell Grant funds to the Department and advise students of the amounts they
    owe to the Department for the remaining $3,057 of Pell Grant funds. TUIU is required to return $49,224 of
    the $158,148 of FFEL disbursement to lenders. The balance of the FFEL disbursements ($108,924) would
    be repaid by students under the terms of their promissory notes.
(d) The funds consist of $179,074 for students who did not engage in academic activity until after the
    disbursement and $75,323 for students who had not successfully completed the previous payment period at
    the time of the disbursement. The student subsequently became eligible for the disbursement.


Based upon our review of TUIU records for the random sample of 98 students, we estimate that
about $923,379 of the $8.6 million of Title IV disbursements made to the 963 students for the
Fall 2007, Winter 2008, and Spring 2008 sessions was either disbursed to ineligible students or
Final Report
ED-OIG/A09I0009                                                                                 Page 12 of 54

not earned by students who withdrew from the institution. We project, with a 90 percent
confidence level, that the actual amount is at least $757,427 and as much as $1,089,332.

TUIU’s Inadequate Policies and Procedures
Impacted Title IV Funds Disbursed to Students
Before TUIU Separated from Touro College

TUIU’s Vice President of Academic Affairs and its Director of Student Financial Aid both
advised us that TUIU’s policies and procedures for administering Title IV programs did not
change when TUIU separated from Touro College and Summit Partners purchased the majority
interest in the institution. Thus, additional amounts of Title IV funds may need to be returned to
lenders and the Department for periods prior to October 16, 2007 (date TUIU became a
stand-alone institution).

When TUIU entered into its program participation agreement with the Department, TUIU
acknowledged that it was liable for improper disbursements and returns of Title IV funds for
withdrawn students. Title 34 C.F.R. § 668.14(b) states—
        By entering into a program participation agreement, an institution agrees that—
                                                   *****
        (25) It is liable for all—
        (i) Improperly spent or unspent funds received under the Title IV, HEA
        programs, including any funds administered by a third-party servicer; and
        (ii) Returns of title IV, HEA program funds that the institution or its servicer may
        be required to make.

New owners are liable for amounts due for the former owner’s improper administration of
Title IV programs. The FSA Handbook states —

        If new owners acquire a school or if a school is the result of the merger of two or
        more schools that formerly were operating separately, the new owner is liable for
        any debts that accrued from the former owner’s FSA [Federal Student Aid]
        program administration. A new owner accepts liability for any federal funds that
        were given to the school but that were improperly spent before the date the
        change in ownership structure, or governance became effective.

Thus, TUIU is liable for Title IV amounts that were improperly disbursed or not returned for
withdrawn students for periods prior to October 16, 2007. 10




10
 Touro College may also be held liable for the Title IV amounts to be returned for periods prior to
October 16, 2007. Touro College (former owner) has maintained its program participation agreement with the
Department, which now covers the campuses for which it retained ownership.
Final Report
ED-OIG/A09I0009                                                                                     Page 13 of 54

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid require TUIU to—

1.1        Develop and implement policies and procedures that comply with the requirements for
           administering Title IV programs for educational programs using a nonterm academic
           year.

1.2        Develop and implement policies and procedures to appropriately confirm students’
           eligibility at the time of Title IV disbursements.

1.3        Develop and implement policies and procedures for identifying students who withdraw
           without providing notification and for performing return of Title IV calculations for such
           students.

1.4        Return to the Department the $7,906 ($7,259 + $647) in Pell Grant funds that we
           identified in our student sample as due for improper disbursements and withdrawn
           students.

1.5        Return to lenders the $184,634 ($135,410 + $49,224) in FFEL disbursements (plus
           interest and special allowances incurred by the Department on the related FFELs) that we
           identified in our student sample as due for improper disbursements and withdrawn
           students.

1.6        Notify the TUIU students, which we identified in our student sample as having not
           earned the $3,057 of Pell Grant funds at the time of their withdrawal, of the amounts they
           need to repay to the Department.

1.7        Conduct a 100 percent review of students who received Title IV disbursements on or
           after October 16, 2007, to identify other amounts to be returned to lenders and the
           Department for disbursements to ineligible students and withdrawn students and return
           those amounts (plus the interest and special allowances incurred by the Department on
           the related FFELs). For the 963 students in our sampling universe, we estimated that
           $923,379 of the $8.6 million of Title IV funds disbursed to students should be returned to
           lenders and the Department for disbursements made to TUIU students during the period
           October 16, 2007 through June 3, 2008 (creation date of TUIU-provided file). 11

1.8        Determine the amount of Title IV funds that were improperly disbursed or not returned
           for withdrawn students for periods prior to October 16, 2007 (TUIU’s separation from
           Touro College), and take action to recover the Title IV funds or other administrative
           actions, as appropriate.




11
     The $923,379 includes the amounts that are to be returned under Recommendation 1.4, 1.5, and 1.6.
Final Report
ED-OIG/A09I0009                                                                     Page 14 of 54

TUIU Comments and OIG Responses

TUIU disagreed with our finding and recommendations and provided comments to each section
of our finding.

TUIU Policies and Procedures Were Not Designed for
Educational Programs with a Nonterm Academic Calendar

•   TUIU Comment. TUIU stated that the Office of Inspector General (OIG) conclusion that
    TUIU was delivering educational programs using a nonterm academic calendar is not
    supported by the applicable law and evidences a misunderstanding of the facts and actual
    operations of its programs. TUIU asserted that it correctly disbursed Title IV funds
    consistent with the regulations and guidance for educational programs using a nonstandard
    academic calendar, for all but a trivial few.

    TUIU provided information as a basis for concluding that during the Fall 2007, Winter 2008,
    and Spring 2008 it offered its educational programs on a nonstandard term academic
    calendar. In addition, TUIU provided information regarding its current practice for treating
    certain versions of its programs as nonterm programs. TUIU’s disagreement focused on four
    discussion areas that are summarized below.

•   OIG Response. We have made some minor revisions to our report, for clarify, but we have
    not made the substantive revisions requested in TUIU’s comments. We do not agree that
    TUIU’s practices were adequate to ensure student eligibility and identify students who had
    withdrawn.

1. Department three-day site visit.

•   TUIU Comment. TUIU stated that during the pre-certification site visit that occurred in
    October 2007, the Department reviewed individual student files and evaluated the treatment
    of its educational programs as nonstandard term without comment or concern.

•   OIG Response. The correspondence submitted by TUIU with its comments did not support
    TUIU’s contention that the Department had evaluated the treatment of its educational
    programs as nonstandard term and had no concerns.

2. TUIU has clearly posted beginning and ending dates and the standard practice for
institutions of higher education to establish policies granting incompletes and extensions does
not turn nonstandard term programs into nonterm programs.

•   TUIU Comment. TUIU stated that the OIG assertion that TUIU did not require students to
    begin or end courses with the posted dates ignores both the institution’s published calendar
    and its actual operations. During the Fall 2007, Winter 2008, and Spring 2008 terms, TUIU
    offered its educational programs on a nonstandard term academic calendar consistent with
    the definition as described in the 2007-2008 Federal Student Aid Handbook. TUIU included
    the following from the Handbook:
Final Report
ED-OIG/A09I0009                                                                     Page 15 of 54


             Nonstandard terms are terms (where all coursework is expected to
             begin and end within a set period of time) that are not semester,
             trimester, or quarter terms. In some cases, the terms may be of
             unequal length, though it is also possible with terms of equal
             length to be considered nonstandard. For instance, a school could
             offer a program with six consecutive 5-week modules, with each
             module counting as a nonstandard term.

  TUIU stated that its students enroll based on the academic calendar published on the TUIU
  website. TUIU’s academic calendar has clearly delineated sessions which are fully defined
  in student disclosures and in the course outlines provided to students. TUIU students are
  unable to access the CNSSS/CourseNet learning environment until the published first day of
  class. If a TUIU student does not request and receive an incomplete, the student’s work
  product is graded and final grades are submitted consistent with the published academic
  calendar.

  TUIU stated that its policy of granting certain nonstandard term students an incomplete grade
  and allowing those students to finish their coursework on an extended basis does not convert
  nonstandard term programs into nonterm programs. The incomplete grade affords the
  student the opportunity to complete the required course work within a reasonable period of
  time, as defined by the institution, in order to receive credit for the course. TUIU stated that
  when the timeframe of an extension coincides with a student’s subsequent enrollment in
  another course, an overlap in sessions is created, since the student is also attending courses
  for the current term.

  TUIU provided examples of three Universities that allowed students time to complete
  coursework when a student has been assigned an incomplete. The decision to grant an
  incomplete, and the terms under which a student can convert the incomplete to a final grade,
  are exclusively within the academic discretion of the institution. TUIU stated that the OIG
  incorrectly asserted that TUIU allowed students to start courses in the next session while
  completing the courses in the prior session. TUIU stated that Department guidance does not
  limit the number of incompletes an institution can grant.

  TUIU stated that it serves a substantial number of U.S. military service members, with a
  significant proportion of those deployed outside the continental United States. Under these
  circumstances it is understandable that TUIU will have students who reasonably require an
  incomplete grade. TUI stated that there is nothing in the Department’s requirements that
  limit the number of incompletes an institution can grant. An institution that serves a large
  number of men and women whose studies may necessarily be secondary to their military
  obligations will necessarily be freer in making that allowance. TUI asserted that the decision
  to grant an incomplete, and the terms under which a student can convert the incomplete to a
  final grade, are exclusively within the academic discretion of the institution.

  TUIU stated that the OIG’s interpretation violates the law and imposes an unwarranted
  hardship on TUIUs large number of military students and that such a conclusion is not
Final Report
ED-OIG/A09I0009                                                                        Page 16 of 54

    supported by any Title IV requirement and constitutes a clear violation of the General
    Education Provisions Act (“GEPA”). TUI avowed that the GEPA prohibits all agencies of
    the Federal government, most notably the U.S. Department of Education, from dictating
    curricular choices or otherwise interfering with an institution’s pedagogical decisions based
    on federal education laws or programs. TUIU provided the following excerpt from
    20 U.S.C. Section 1232a which states:

               No provision of any applicable program shall be construed to authorize any
               department, agency, officer, or employee of the United States to exercise any
               direction, supervision, or control over the curriculum, program of instruction,
               administration, or personnel of any educational institution. . . .

    TUIU asserted that the OIG is violating the GEPA and interfering with pedagogical decisions
    by telling institutions when it is or is not appropriate to grant an incomplete grade.

•   OIG Response. The section of the FSA handbook that TUIU quoted in its response applies
    solely to term programs, that is standard or nonstandard term programs, and does not apply to
    nonterm programs. The FSA Handbook states that generally, a term (standard or
    nonstandard) is a period in which all classes are scheduled to begin and end within a set time
    frame. However, if these periods overlap within a program, they may not be treated as a
    term-based program for Title IV purposes. In other words, if the term program does not fall
    into a standard term definition such as the traditional semester, trimester, or quarter, then that
    term program may fall under the nonstandard term program definition. However, as we
    discussed in our audit report, for purposes of the administration of Title IV funds, there are
    three basic types of academic calendars: term calendars that are either standard term or
    nonstandard term, and nonterm.

    TUIU had published start and end dates for all sessions and until TUIU added the May 2008
    session, the published session dates did not overlap. However, even before TUIU added the
    May 2008 session, TUIU students were enrolled in overlapping sessions. TUIU students that
    were in the process of completing a session after the posted end date, military or otherwise,
    and continued to attend courses in the following session, were enrolled in overlapping
    sessions. We found that TUIU did not require its students to complete the sessions within the
    published dates.

    We obtained electronic data from TUIU in June 2008, which contained the students who had
    received Title IV disbursements. We limited our sample selection and review to the Fall
    2007, Winter 2008, and Spring 2008 sessions because the May 2008 session had not ended at
    the time we obtained the data. Our review of academic records for 98 students found that the
    students completed about 59 percent of the sessions after the scheduled last day of class.
    Thus, as stated in our report, while the scheduled session start and end dates did not overlap
    until the May 2008 session, the sessions actually did overlap because students were taking
    courses in more than one session at a time.

    Given the extent that TUIU used extensions and incompletes in its academic programs as a
    standard practice rather than on the exception basis, we concluded that the academic
Final Report
ED-OIG/A09I0009                                                                    Page 17 of 54

  programs did not have real established ending dates. TUIU had established a program
  structure that allowed a high percentage of its students, military and other students, flexible
  timeframes for completing courses and sessions and allowed students to attend overlapping
  sessions. TUIU used extensions and incompletes to manage this flexibility even though it
  posted session beginning and ending dates. TUIU’s structure illustrated that there are no real
  ending dates and its students overlap sessions therefore TUIU programs meet the Department
  definition of a nonterm academic calendar as described in the TUIU response and in our
  Audit Report.

  The Department considers a program that measures progress in credit hours to be nonterm if
  the program has:
         • Courses that do not begin and end within a set period of time
         • Courses that overlap terms,
         • Self-paced and independent study courses that overlap terms, or
         • Sequential courses that do not begin and end within a term.

  The flexibility that TUIU provides its military and other students to attend college along with
  other life priorities is admirable. However, the extent of flexibility provided students who do
  not complete courses within a set period of time confirms that TUIU is in fact operating its
  programs on a nonterm basis, thereby triggering the obligation to administer Title IV funds in
  accordance with the requirements applicable to nonterm programs. Those requirements
  provide the flexibility TUIU states it desires as under those rules Title IV aid is packaged and
  disbursed according to the circumstances and academic progress of individual students.

  TUIU stated that the OIG’s interpretations impose an unwarranted hardship on TUIUs large
  number of military students; however, TUIU did not explain or provide details of the
  hardship that was being imposed.

  The OIG is not interfering with pedagogical decisions by its audit conclusion that TUIU did
  not administer Title IV funds in compliance with the laws, regulations, or Department
  guidance. TUIU is free to structure and implement its academic programs in any way that it
  chooses. TUIU, however, must comply with the Title IV requirements that apply to the
  academic structure that TUIU has chosen or implemented. The OIG conclusion is specific to
  TUIU’s administration of Title IV funds and is unrelated to pedagogical decisions.

  The OIG recommendations do not require TUIU to change its programs, curricular choices,
  or pedagogical decisions. OIG is recommending that TUIU administer Title IV funds in
  accordance with the Title IV laws, regulations, and guidelines. We based our audit
  conclusions on the following: 1) about 59 percent of student’s sessions in our sample were
  not completed within a set period of time, 2) students in our sample were attending sessions
  that overlapped, 3) TUIU students in our sample completed courses at their own pace,
  and 4) TUIU added scheduled overlapping sessions starting in May 2008.

  The information provided by TUIU on policies at other institutions did not affect our
  conclusion that TUIU’s implementation of its own policy requires TUIU to administer Title
  IV funds on a nonterm basis.
Final Report
ED-OIG/A09I0009                                                                       Page 18 of 54

    TUIU stated that students are unable to access the CNSSS system until the published first
    day of class. However, we found students in our sample that did not begin the session until
    after the posted end date of the session. Therefore, this information did not change our
    conclusion that TUIU did not require students to begin or end courses within the posted
    dates.

3. Flexibility is the hallmark of online learning and TUIU programs were not self-paced or
independent study.

•   TUIU Comment. TUIU programs are not and were not self-paced or independent study. The
    OIG erroneously asserted that TUIU allowed students to enroll in courses almost every
    month and complete assignments at their own pace. The TUIU Course Guidelines and
    course syllabi articulate the expectations for the students and each module has specific due
    dates. Students are expected to submit assignments and/or participate in threaded discussions
    in every module within the timeframes established for the module and course.

•   OIG Response. TUIU accommodates its students with its flexible approach to the timeframe
    for submitting assignments and completing courses. Based on the information presented in
    our report we concluded that this flexibility is self-paced and confirms that TUIU in fact
    operates a nonterm academic calendar.

4. The Department provided guidance and interpretations regarding the use of both a
nonstandard term and a nonterm academic calendar that TUIU has a right to rely upon.

•   TUIU Comment. TUIU stated that it did not utilize overlapping terms prior to May of 2008.
    Beginning in May of 2008 TUIU introduced session start dates in the months of May,
    August, and November that did cause certain versions of its programs to meet the definition
    of nonterm programs. TUIU acknowledged that some students were enrolled in overlapping
    terms, which took place in May, August, and November 2008, and those students were
    appropriately treated as nonterm students. TUIU stated that the session dates in Table 1 of
    the OIG Draft Report make it clear that TUIU offered programs on both a nonstandard term
    basis and a nonterm basis starting with May 2008.

    TUIU asserted that it served two populations of students: nonstandard term students who
    started instruction at the beginning of any term and continued sequential sessions of
    enrollment through the academic year one term at a time and nonterm students who enrolled
    in overlapping terms. TUIU stated that the OIG auditors were aware of the Department’s
    position in this regard. TUIU stated that this change did not cause the University’s
    nonstandard term programs to be transformed into nonterm programs. Rather, TUIU
    professed that it applied a different academic calendar for different versions of its programs.

    TUIU further explained that other than the initiation of limited overlapping sessions in May
    of 2008, its students did not enroll in overlapping sessions. TUIU clarified that to the extent
    students were enrolled in overlapping sessions (May 2008, August 2008 and November
    2008) that TUIU treated those students as nonterm students but stated that all other students
    were appropriately treated as nonstandard term students. TUIU believed that this treatment
Final Report
ED-OIG/A09I0009                                                                      Page 19 of 54

    was consistent with both the Department’s requirements and its direct advice to TUIU when
    TUIU asked for clarification on this issue.

    TUIU defended its use of both nonstandard term and nonterm academic calendars because it
    was vetted by the Department during a conference call meeting involving TUIUs legal
    counsel and Department representatives with clear authority and seniority within the
    Department. TUIU provided as an attachment to its response to the draft report, a one page
    e-mail dated July 23, 2008, from its legal counsel to Department representatives that
    summarized the conversation. The e-mail included a brief description of the term program
    and the nonterm program that TUIU planned to implement. TUIU asserted that the auditors
    were well aware of the Department’s position related to the TUIU plan to implement the use
    of both a nonstandard term and a nonterm academic calendar. TUIU stated that it has the
    right to rely on such guidance and provided the following in support: Associated Technical
    College, Docket No. 91-112-SP, at p. 27 (Initial Decision Feb. 3, 1993), affirmed by the
    Secretary (July 23, 1993).

    TUIU asserted that its treatment is consistent with the regulations and guidance of the
    Department which specifically allow institutions to apply different academic calendars for
    two versions of the same program. TUIU reviewed the OIG student sample and found that,
    at most, only four of the 98 students in the OIG sample were enrolled on a nonterm basis.

•   OIG Response. TUIU is correct that Department guidance allows a school to have different
    academic years for different programs. As stated in our audit report, our review covered
    TUIU’s policies and procedures from the date TUIU became a stand-alone institution on
    October 16, 2007, through June 20, 2009. During that time period, TUIU had not established
    two versions of the same academic program as two separate programs nor was it
    administering Title IV funds based on a nonterm calendar for any of its students. However,
    TUIU had implemented the May 2008 session with a posted start date of May 27, 2008, and
    posted end date of August 1, 2008. As illustrated in Table 1, the May 2008 session
    overlapped the Spring 2008 and the Summer 2008 sessions.

    TUIU was offering programs on a nonterm basis prior to the implementation of the May,
    August, and November 2008 sessions as supported by our audit report. Our conclusion that
    TUIU was delivering educational programs using a nonterm academic calendar for its
    education programs would not have been different if TUIU had not added the May 2008,
    August 2008, or November 2008 sessions. However, by adding the May, August, and
    November 2008 sessions, TUIU increased the frequency of session start dates and expanded
    its practice of allowing students to enroll in overlapping sessions. TUIU stated that, at most,
    the OIG sample included only four students that were enrolled on a nonterm basis but TUIU
    did not identify the students or provide additional information about the four students.

    The information TUIU provided regarding discussions with Department representatives
    concerning treating two versions of the same program as separate programs (one as a term
    program and one as a nonterm program), did not alter our conclusion. None of the
    information indicated that Department representatives agreed that TUIU properly
    administered any version of its program on a nonstandard term basis.
Final Report
ED-OIG/A09I0009                                                                                      Page 20 of 54


     During our audit period, TUIU administered all Title IV funds using a nonstandard term
     academic calendar. Given that we are not questioning or making recommendations in our
     audit report regarding whether TUIU has the right to implement two versions of the same
     academic program as separate programs, the discussions shared with the OIG auditors, the
     TUIU representative conference call discussions with Department representatives, the e-mail
     TUIU referenced, and the Associated Technical College case are irrelevant to our audit
     findings and recommendations.

TUIU’s Procedures Did Not Ensure that Students
Were Participating in Academic Activity at the
Time of the Title IV Disbursements

•    TUIU Comment. TUIU stated that its initial Title IV disbursements were appropriate. TUIU
     stated that four of the students that OIG had concluded were ineligible for Title IV funds
     attended during the session or were granted an incomplete grade consistent with institutional
     policy and submitted coursework following that incomplete. TUIU provided a schedule
     identifying the four students and the dates of their academic activity.

     TUIU stated its learning model was specifically adopted to accommodate the time-
     challenged demands of service members, and TUIU allowed for some flexibility as to when a
     student submitted assigned coursework after the start date of the course. TUIU stated that
     even assuming that the assertion of liability for this issue is legally defensible, the amounts
     are significantly overstated. TUIU asserted that the OIG had failed to apply the “Actual Loss
     Formula,” 12 which is required by the Department’s policy and practice and would
     significantly reduce the liability.

     TUIU stated that even though it believed that its procedures were consistent with the Title IV
     requirements and the nature of its programs, it had implemented various procedures to
     improve the documentation of student eligibility at the time of the Title IV disbursement.
     The revised procedures include confirming that a student had engaged in an academically
     related activity prior to disbursing Title IV funds. TUIU personnel have been reminded
     about the importance of counseling students regarding academic engagement throughout the
     course and the importance of timely updates to student records.

•    OIG Response. TUIU did not provide documentation to support the scheduled dates of
     academic activity for the four students it identified as eligible for Title IV funds. We noted
     that many of the dates in the schedule that TUIU provided were after the completion of our
     audit work. TUIU can submit evidence during the audit resolution process to: 1) verify
     whether the 4 students were eligible for Title IV funds, and 2) demonstrate if the procedures
     that TUIU has implemented are adequate to appropriately confirm student eligibility at the

12
  FSA commonly uses an estimated actual loss formula for this type of finding in the audit resolution process to
determine the amount of FFEL funds to be returned. When audits have identified loans that were made to ineligible
students, the lender and guaranty agency may continue to receive payments on the ineligible loans. The formula
takes into account a school’s default rate and the amount of the ineligible disbursements to calculate an amount that
includes the estimated actual loss to the government for which the school is liable.
Final Report
ED-OIG/A09I0009                                                                        Page 21 of 54

    time of Title IV disbursements. The audit resolution process will determine the final
    liability, including any application of the estimated actual loss formula.

TUIU Did Not Have Policies or Procedures for
Identifying Students That Had Withdrawn Without Providing
Official Notification to the Institution

•   TUIU Comment. TUIU stated that the Department did not raise issues with respect to the
    policies in place covering unofficial student withdrawals or the operation of those policies
    during its review of relevant policies and procedures prior to granting its free-standing status.
    TUIU asserted that actual instances of unofficial withdrawal errors were substantially lower
    than those asserted by the OIG because the OIG selected significantly higher percentages of
    students with “F” and “incompletes” than in the population as a whole. Instances of
    unofficial withdrawals are uncommon, which is consistent with TUIU’s low overall
    withdrawal rate and its procedures for outreach to non-participating students. TUIU has
    revised and implemented its unofficial withdrawal policy in an effort to address the OIG’s
    concerns.

•   OIG Response. Our report did not estimate the possible instances of unofficial withdrawal
    errors to the universe of Title IV students. The 74 percent included in page 10 of the draft
    report does not state it was related to TUIU’s withdrawal rate nor was it intended as an
    estimate of the withdrawal rate of the universe of Title IV students. The draft report clearly
    states that of the 98 students in our sample 73 students had improper disbursements and/or
    lacked a return of Title IV calculation for the Fall 2007, Winter 2008, and/or Spring 2008
    sessions. The 74 percent is a simple calculation of 73 out of the 98 students in our sample.

    The OIG did not review or confirm the rate of withdrawal calculated by TUIU. However, we
    concluded that during our audit period TUIU did not have policies to address circumstances
    when students ceased attendance without notifying the institution and no procedures to
    identify such students for purposes of performing return of Title IV calculations. Therefore,
    TUIU’s withdrawal rate may not include all students that should have been withdrawn from
    TUIU.

TUIU’s Deficient Policies and Procedures Resulted in
Improper Disbursements and Failure to Return
Title IV Funds for Withdrawn Students

•   TUIU Comment. TUIU asserted that the OIG analysis fails to take into account applicable
    law and TUIU’s operations and therefore does not support the findings. TUIU purported that
    except for four students in the sample, the application of nonterm requirements by the OIG
    was inappropriate. TUIU reviewed the records of students included in the OIG calculation of
    liability and recalculated the errors using the rules for nonstandard term programs. TUIU
    provided a schedule showing the results of its review and recalculations.
Final Report
ED-OIG/A09I0009                                                                   Page 22 of 54

•   OIG Response. We did not review the schedule provided by TUIU using nonstandard term
    guidance because we concluded that TUIU should be administering Title IV funds using
    nonterm guidance.


TUIU’s Inadequate Policies and Procedures
Impacted Title IV Funds Disbursed to Students
Before TUIU Separated from Touro College

•   TUIU Comment. TUIU asserted that its operations were in substantial compliance with Title
    IV requirements throughout the Audit Period and that there is no material liability to be
    asserted for the period prior to October 16, 2007.

•   OIG Response. TUIU’s comments did not demonstrate that its operations were in substantial
    compliance with Title IV requirements throughout the Audit Period or that there is no
    material liability for the period prior to October 16, 2007.

Recommendations

•   TUIU Comment. TUIU asserted that the OIG recommendations are based on faulty analysis.
    TUIU’s response to each recommendation in the Draft Report follow—

    1.1    TUIU was not required by Department of Education regulations to establish policies
           and procedures for using a nonterm academic year for enrollment periods prior to
           May 2008. The institution does have and has had policies and procedures to address
           the small number of students who actually enroll in its nonterm academic programs.

    1.2    TUIU’s existing procedures were compliant with Title IV requirements, but TUIU
           has moved to improve these policies as noted in this response.

    1.3    TUIU’s existing procedures were compliant with Title IV requirements, but TUIU
           has moved to improve these policies.

    1.4    TUIU has returned to the Department $7,906 in Federal Pell Grants funds consistent
           with this recommendation solely in order to close this finding.

    1.5    The liability of $184,634 (135,410 + 49,224) determined by the OIG is significantly
           overstated both because of the methodology and because the OIG failed to apply the
           Actual Loss Formula to its assertions of liability.

    1.6    Based on TUIU’s recalculations, the Federal Pell Grant funds in the amount of $3,057
           are not due back from the students.

    1.7    The Draft Report includes errors; therefore, the 100 percent review of students that
           received Title IV disbursements on or after October 16, 2007 should be unnecessary.
           However, the Department has requested a similar file review covering the period
Final Report
ED-OIG/A09I0009                                                                     Page 23 of 54

          October 16, 2007, through June 30, 2008, based on TUIU’s compliance audit. The
          results of this file review will be provided to the Department shortly and will make
          this recommendation moot.

    1.8   TUIU operations were in substantial compliance with the Title IV requirements; there
          is no material liability to be asserted for the period prior to October 16, 2007.

•   OIG Response. We have made minor revisions to our recommendations, for clarity, but we
    have not made the substantive changes requested in TUIU’s comments.

    1.1   Recommendation was not revised because we concluded that TUIU was using a
          nonterm academic calendar for its educational programs.

    1.2   Recommendation was not revised because TUIU did not provide additional
          information to support that it had policies and procedures to appropriately confirm
          student eligibility at the time of Title IV disbursements.

    1.3   Recommendation was not revised because TUIU did not provide information to
          support that it had policies and procedures in place for identifying students who
          withdrew without providing notification and performing return of Title IV
          calculations for such students.

    1.4   Recommendation was not revised. If the Department can verify from its records that
          TUIU has returned the $7,906, it will not need to require an additional payment.

    1.5   Recommendation was not revised. Determination of the actual liability will be
          addressed by FSA in the audit resolution process.

    1.6   Recommendation was not revised because TUIU did not provide support that it had
          notified the students we identified in our sample of the amounts they need to repay to
          the Department.

    1.7   Recommendation was not revised. The 100 percent review of students that received
          Title IV disbursements on or after October 16, 2007 remains necessary. The
          Department will determine the actual liability during the audit resolution process.

    1.8   We did not eliminate the recommendation as suggested by TUIU. We clarified the
          recommendation to include the participation of TUIU in determining any liability for
          the prior period. Without a file review for that period, TUIU’s assertion that there is
          no material liability is unsubstantiated.
Final Report
ED-OIG/A09I0009                                                                       Page 24 of 54

FINDING NO. 2 – TUIU Has Not Demonstrated the Ability to Adequately Administer
                 Title IV Programs

During the course of the audit, other deficiencies in TUIU policies and procedures came to our
attention concerning academically related activity, length of the academic year, tuition discounts,
loan periods, and training. Based on the deficiencies noted in Finding No. 1 and this finding, we
concluded that TUIU had not demonstrated the capability to adequately administer the Title IV
programs.

TUIU Did Not Have an Adequate Policy on
Academically Related Activities for
Purposes of Administering Title IV Programs

TUIU did not have a written policy on what constituted academically related activities, but TUIU
officials and staff did provide us with verbal explanations of the activities that they considered as
academically related activities when making determinations in its administration of Title IV
programs. The explanations included activities that do not meet the definition of an
academically related activity.

The definition of academically related activity is found at 34 C.F.R. § 668.22(c)(3)(ii) —

       An “academically-related activity” includes, but is not limited to, an exam,
       a tutorial, computer-assisted instruction, academic counseling, academic
       advisement, turning in a class assignment or attending a study group that is
       assigned by the institution.

TUIU officials and staff stated that TUIU considered all course activities and communications
between academic advisors/staff and students to be academically related activities. The
communications that TUIU considered to be academic activity included interactions about the
students’ inactivity in the course, personal problems, a student’s intentions to complete course
work, and requests for additional time to complete course assignments. Such communications
do not meet the above definition of academically related activity.

The activities that constitute academically related activity impact an institution’s decisions when
1) identifying students who have withdrawn without providing formal notification to the
institution and 2) performing return of Title IV calculations for students who withdraw (with or
without notice to the institution). Title 34 C.F.R. § 668.22(c)(3)(i) explains how an institution
uses academically related activity to determine the student’s withdrawal date.

       [A]n institution that is not required to take attendance may use as the student's
       withdrawal date a student's last date of attendance at an academically-related
       activity provided that the institution documents that the activity is academically
       related and documents the student's attendance at the activity.

The withdrawal date determines the percentage of Title IV funds earned by the student for return
of Title IV calculations.
Final Report
ED-OIG/A09I0009                                                                      Page 25 of 54

TUIU Did Not Properly Determine the Number of
Weeks of Instruction in Its Academic Year

TUIU defined the academic year for its educational programs as 48 weeks in length. However,
the 48 weeks included weeks during which there was no scheduled instruction or examinations.
Title 34 C.F.R. § 668.3(a)(1)(i) requires that an academic year for an educational program
offered in credit hours have a minimum of 30 weeks of instructional time. The definitions
provided in 34 C.F.R. § 668.3(b) are used to determine the number of weeks.

        Definitions. For purposes of paragraph (a) of this section—
           (1) A week is a consecutive seven-day period;
           (2) A week of instructional time is any week in which at least one day of
       regularly scheduled instruction or examinations occurs or, after the last
       scheduled day of classes for a term or payment period, at least one day of study
       for final examinations occurs; and
           (3) Instructional time does not include any vacation periods, homework, or
       periods of orientation or counseling.

As we noted earlier in the report, the 48 weeks contained four sessions – each session was
12 weeks in length. The first ten weeks were composed of the five two-week modules of
coursework. The following week was for students to complete and submit a course reflection
discussion paper and the last week was for instructors to assign course grades for the session.
The reflection paper was not required or graded as part of the overall course grade. The last two
weeks of each session did not include at least one day of instruction or examinations. Thus, the
length of the academic year for TUIU’s educational programs was 40 weeks rather than
48 weeks. An academic year of 40 weeks in length still exceeds the required minimum of
30 weeks. However, TUIU’s improper determination of the length is another example of a lack
of understanding of the requirements for administration of Title IV programs.

TUIU Did Not Have Procedures for Applying Tuition Discounts
When Determining a Student’s Cost of Attendance

TUIU offered tuition discounts to government employees and all residents of California, but did
not apply the discounts when determining a student’s cost of attendance. The cost of attendance
is an estimate of a student’s educational expenses for the period of enrollment and is used to
establish the student’s financial need. Financial need is used in determining the amount of
Title IV funds that a student is eligible to receive in an academic year. The components of the
costs of attendance, which include tuition, are specified in Section 472 of the HEA.

Since cost of attendance is an estimate, the average expenses for students at the institution may
be used rather than actual expenses. The FSA Handbook provides the following guidance—
Final Report
ED-OIG/A09I0009                                                                       Page 26 of 54

       For example, for the tuition and fees component, you can use the same average
       amount for all full-time students, instead of figuring the actual tuition and fees for
       each individual student. You can have different standard costs for different
       categories of students, such as a cost of attendance for out of state students (who
       have higher tuition) and a lower cost of attendance for in state students.

However, tuition not charged to the student should not be included in the cost of education. The
FSA Handbook states—

       When a specific component of a student’s cost of attendance is waived or
       explicitly paid by another source, special treatment may be necessary.
                                              *****
       If the student is never charged for tuition and fees, then the cost of attendance
       wouldn’t include the tuition and fees component.

TUIU developed standard budgets that its financial aid staff used to determine students’ cost of
attendance. TUIU did not have procedures for adjusting amounts in the standard budgets when
students were given a tuition discount. For example, TUIU’s cost of attendance budget for a
student taking two courses per session who was enrolled in an educational program offering a
bachelors’ degree was $24,974, which included $8,000 for tuition (8 courses times $1,000 per
course). The discounted tuition for a similar student would be $6,000 (8 courses times $750 per
course), or $2,000 less. The discounted tuition should have been used to calculate the student’s
cost of attendance. While this is another instance of noncompliance that demonstrates TUIU
officials’ and staff’s lack of understanding of Title IV requirements, the overstated costs of
attendance likely did not impact the Title IV awards made to students (i.e., adjusted cost of
attendance would still exceed expected family contribution and available Title IV awards.)

TUIU’s President advised us that TUIU had implemented procedures for adjusting amounts in
the standard budgets to reflect tuition discounts provided to TUIU students.

TUIU Improperly Certified New FFELs for
Continuing Students When TUIU
Became a Stand-Alone Institution

After separating from Touro College, TUIU cancelled students’ existing FFELs that had not yet
been fully disbursed and obtained new loans for the students. TUIU’s Director of Financial Aid
advised us that TUIU did not properly certify the new FFELs and was taking steps to correct the
loans. The Director explained that TUIU had used a loan period that encompassed the Fall 2007
session through Spring 2008 session and had calculated the loan amounts based on the student’s
cost of attendance and expected family contribution for a full academic year. TUIU did not
consider the loan period or amounts already disbursed under the cancelled loans.

The FSA Handbook describes the process for students who transfer from one school to another
school when there is an overlap in academic years. An overlap in academic years exists if the
academic year at the new school begins before the calendar end date of the academic year at the
prior school. If a student enrolls in a nonterm or nonstandard term program after already having
Final Report
ED-OIG/A09I0009                                                                         Page 27 of 54

taken out a loan at another school with an overlapping academic year, the student is restricted to
the original annual loan limit until the completion of the first academic year at the new school.

TUIU’s Chief Financial Officer (CFO) advised us that TUIU is continuing to review the student
files to confirm that the applicable FFELs were the correct loan amount and loan type and that
TUIU will return Title IV funds to lenders, when required.

TUIU Must Demonstrate Administrative Capability for
Continued Participation in Title IV Programs

Based on the collective deficiencies noted in our audit, we concluded that, at this time, TUIU has
not demonstrated it is capable of adequately administering the Title IV programs. To continue
participation in a Title IV program, 34 C.F.R. § 668.16 requires an institution to demonstrate that
it “is capable of adequately administering that program under each of the standards established in
this section.” The standards include, among other requirements, that an institution—

       Administers the Title IV, HEA programs in accordance with all statutory provisions
       of or applicable to Title IV of the HEA, [and] all applicable regulatory provisions
       prescribed under that statutory authority.... [34 C.F.R. § 668.16(a)]
       Administers the Title IV, HEA programs with adequate checks and balances in its
       system of internal controls.... [34 C.F.R. § 668.16(c)(1)]
       Shows no evidence of significant problems that affect, as determined by the
       Secretary, the institution’s ability to administer a Title IV, HEA program....
       [34 C.F.R. § 668.16(j)]
       Does not otherwise appear to lack the ability to administer the Title IV, HEA
       programs competently.... [34 C.F.R. § 668.16(n)]

TUIU’s Director of Financial Aid, with three financial aid advisors, performed the activities
related to the administration of the Title IV programs. TUIU developed a Financial Aid Manual
that provides an overview of the administration of Title IV programs. The manual was designed
to be used in conjunction with guidance issued by the Department. Our review found that TUIU
had organized financial aid records and academic records that were easily accessible and
contained a detailed record of academic activity. However, as demonstrated by our audit
findings, there were numerous areas where TUIU’s policies and procedures did not comply with
requirements for Title IV programs.

Recommendations

We recommend that the Chief Operating Officer for Federal Student Aid—

2.1    Confirm that TUIU has demonstrated that it is capable of adequately administering Title
       IV prior to removing the provisional aspect of its Program Participation Agreement
       certification that ends on December 31, 2009.
Final Report
ED-OIG/A09I0009                                                                          Page 28 of 54

2.2      Consider taking action, as appropriate, under 34 C.F.R. § 668, Subpart G to fine, limit,
         suspend or terminate the participation of TUIU.

2.3      Require TUIU to develop and implement a written policy on the definition of
         academically related activity that complies with 34 C.F.R. § 668.22(c)(3)(ii).

2.4      Require TUIU to establish the length of its academic year using the definition in
         34 C.F.R. § 668.3(b).

2.5      Confirm that TUIU has developed and implemented procedures for adjusting its standard
         budget for the cost of attendance when students receive tuition discounts.

2.6      Confirm that TUIU has completed the necessary actions to correct the FFELs that were
         not properly certified for students who were attending TUIU when it became a stand-
         alone institution.

TUIU Comments and OIG Responses

TUIU disagreed with our finding and recommendations and provided comments to each section
of our finding.

TUIU Did Not Have an Adequate Policy on
Academically related Activities for
Purposes of Administering Title IV Programs

•     TUIU Comment. TUIU disagreed with the OIG assertion that TUIU did not have a written
      policy on what constituted academically related activities. TUIU stated that students did
      have written notice of the academic activity requirement in the course syllabi and in the
      Course Guidelines. TUIU asserted that the explanation TUIU provided to the OIG of what
      constituted academically related activity was fully within the regulatory definition. TUIU
      asserted that the list of academically related activity at 34 C.F.R. § 668.22(c)(3)(ii) cannot be
      exclusive and must include the “but is not limited to” language because anything else would
      impermissibly interfere with an institution’s pedagogical decisions under the GEPA
      provision. TUIU stated that the regulation specifically includes academic counseling and
      advisement along with substantive coursework as academically related activity.

•     OIG Response. TUIU did not present additional information or demonstrate that it had a
      written policy on the definition of academically related activity that complied with
      34 C.F.R. § 668.22(c)(3)(ii). TUIU is correct that the regulation does not limit the
      academically related activity definition to the list provided. However, every contact with a
      student by TUIU cannot be considered academically related for the purpose of the
      administration of Title IV funds.
Final Report
ED-OIG/A09I0009                                                                      Page 29 of 54

TUIU Did Not Properly Determine the Number of
Weeks of Instruction in Its Academic Year

•   TUIU Comment. TUIU stated that significant academic activity did take place in the weeks
    questioned by the OIG in the OIG sample of students. TUIU stated that its academic year
    was still significantly longer than the required minimum and that there were no adverse Title
    IV implications. TUIU reviewed the structure of its educational programs and revised the
    structure of the sixth module to clarify what is required by the student in such modules and
    made revisions to its academic year definition consistent with applicable regulatory
    requirements.

•   OIG Response. TUIU’s assertion that a review of the sampled students revealed that
    significant academic activity did take place in the weeks questioned is irrelevant to the
    definition of a week of instructional time. An institution’s definition of an academic year for
    a program of study must include a minimum of 30 weeks of instructional time. The
    definition of a week of instructional time does not include a students’ academic activity or
    timing of the academic activity during the program.

    As discussed in our report, the regulation defines a week of instructional time as any week in
    which the institution has at least one day of regularly scheduled instruction or examination,
    and does not include any vacation periods, homework, or periods of orientation or
    counseling.

    In our draft report, we acknowledged that TUIU’s actual weeks in its academic year
    exceeded the required minimum of 30 weeks.

TUIU Did Not Have Procedures for Applying Tuition Discounts
When Determining a Student’s Cost of Attendance

•   TUIU Comment. TUIU asserted that there is nothing in the statutory definition that requires
    an adjustment in the cost of attendance for Tuition discounts. TUIU stated that California
    residents and government employees are a very small percentage of TUIU’s student
    population. TUIU asserted that the cost of attendance as utilized by TUIU was consistent
    with the Title IV requirements. TUIU explained that it has revised its practices to use an
    adjusted cost of attendance for California residents and government employees.

•   OIG Response. As discussed in the draft report, the Department guidance states that tuition
    not charged to the student should not be included in the cost of education. We continue to
    recommend that the Department confirm TUIU’s development and implementation of
    procedures for adjusting its standard budget for the cost of attendance when students receive
    tuition discounts.
Final Report
ED-OIG/A09I0009                                                                     Page 30 of 54

TUIU Improperly Certified New FFELs for
Continuing Students When TUIU
Became a Stand-Alone Institution

•   TUIU Comment. TUIU stated it is continuing to review the student files to confirm that no
    students were over awarded or received the incorrect loan type or amount and will return any
    loan funds or make any adjustments, as necessary.

•   OIG Response. During the exit conference the Chief Financial Officer had advised us that
    the review had been complete. We revised the report to reflect the information provided in
    TUIU’s response. We continue to recommend that FSA confirm that TUIU has completed
    the necessary actions to correct the FFELs that were not properly certified for students who
    were attending TUIU when it became a separate institution.

TUIU Officials Were Unaware of
Requirement for Title IV Programs Training

•   TUIU Comment. TUIU stated that the Chief Financial Officer was not the chief
    administrator designated to attend the training and was under no obligation to undertake the
    training. TUIU asserted that the Chief Executive Officer and the Director of Financial Aid
    were always fully aware of the training requirements and had one-year from the change of
    ownership to have appropriate personnel attend the training.

•   OIG Response. We removed this section of Finding 2 and the related Recommendation
    because TUIU provided supporting documentation showing that the designated staff had
    completed the required training. We suggest TUIU ensure personnel involved with the
    administration of Title IV receive adequate and ongoing training.

Recommendations

•   TUIU Comment. TUIU’s response to each recommendation in the Draft Report follow—

    2.1    TUIU has fully established that it has the administrative capability necessary to
           administer the Title IV programs.

    2.2    The Draft Report seriously overstates any non-compliance by TUIU. To the extent
           there were any compliance issues; the University has taken significant steps to rectify
           those issues.

    2.3    TUIU’s definition of academically related activity was fully compliant with
           applicable Title IV program requirements but the University has revised its definition
           consistent with the OIG’s position

    2.4    TUIU’s definition of its academic year was fully compliant with the Title IV
           requirements. Nonetheless, TUIU has revised its definition consistent with the OIG’s
           position and the provisions of 34 C.F.R. § 668.3(b).
Final Report
ED-OIG/A09I0009                                                                   Page 31 of 54

    2.5    TUIU’s cost of attendance fully complied with the Title IV requirements.
           Nonetheless, TUIU has developed and implemented procedures for adjusting its
           standard budget cost of attendance when students receive Tuition discounts consistent
           with the OIG’s directives.

    2.6    TUIU is reviewing its records and will make any necessary adjustments or
           repayments with respect to Federal Family Education Loan program loans that it
           determines were not properly certified for students who were attending TUIU when it
           became a stand-alone institution, if any.

•   OIG Response. The Department may consider additional information provided by TUIU
    when determining the corrective action for this finding. We removed the recommendation to
    the Department to confirm that TUIU’s President, Director of Financial Aid, and other staff
    complete appropriate training on the administration of Title IV programs.

    2.1    Recommendation was not revised. TUIU’s response did not convince us that it has
           the administrative capability necessary to administer the Title IV programs.

    2.2    Recommendation was not revised. TUIU did not provide additional information to
           support a change in our recommendation.

    2.3    Recommendation was not revised. TUIU did not provide additional information to
           support a change in our recommendation.

    2.4    Recommendation was not revised. TUIU did not provide additional information to
           support a change in our recommendation.

    2.5    Recommendation was not revised. TUIU did not provide additional information to
           support a change in our recommendation.

    2.6    Recommendation was not revised. TUIU stated it is continuing to review the student
           files for the FFELs that were not properly certified.
Final Report
ED-OIG/A09I0009                                                                      Page 32 of 54


                 OBJECTIVES, SCOPE, AND METHODOLOGY


The objective of our audit was to determine whether TUIU had policies and procedures to ensure
the Title IV programs were properly administered in accordance with applicable requirements of
the HEA, Federal regulations, and Department guidance. Our review was limited to the
following areas:

   •   Student eligibility for Title IV funds at the time of disbursement (i.e., policies and
       procedures to ensure the student is enrolled in the program, had begun
       attending/participating in the courses scheduled for the term for the initial disbursement,
       and is attending/participating at the time of subsequent disbursements);
   •   Identification of withdrawn students;
   •   Return of Title IV calculations; and
   •   Timeliness of the return of Title IV funds for withdrawn students.
Our review covered TUIU’s policies and procedures for the period October 16, 2007 through
June 20, 2008.

To obtain background information on TUIU and its operations, we reviewed the institution’s
history and other organizational information that was available on TUIU’s website and
interviewed Department, accrediting agency, and state oversight agency officials and the
documentation provided by them. We reviewed financial statement audit reports on Touro
University International (a division of Touro University, a California not-for-profit organization)
as of June 30, 2006 and 2005, and as of June 30, 2005 and 2004. We also reviewed the audit
reports covering the balance sheet and other financial information (as of December 31, 2006) for
the Summit Partners funds and the related statements of operations, changes in partners’ capital,
and cash flows for the period from February 9, 2006 (inception) to December 31, 2006.

To evaluate TUIU’s policies and procedures related to the administration of Title IV programs,
we—
   •   Gained an understanding of selected provisions of the HEA, regulations, and Department
       guidance applicable to areas being reviewed under our audit objective.
   •   Reviewed TUIU’s written policies and procedures and interviewed TUIU officials.
   •   Obtained an understanding of CNSSS and the information available in CNSSS.
   •   Evaluated CNSSS information for a random sample of TUIU students. For each sampled
       student, we reviewed academic, financial aid and accounting records for the Fall 2007,
       Winter 2008, and Spring 2008 sessions.
Final Report
ED-OIG/A09I0009                                                                        Page 33 of 54

To select the random sample of TUIU students, we obtained electronic data from TUIU of the
students who had received Title IV disbursements for the Fall 2007, Winter 2008, and Spring
2008 sessions. The data contained information on 963 students who received a total of
$8,577,699 in Title IV disbursements for the Fall 2007, Winter 2008, and Spring 2008 sessions.
We compared the information in the TUIU-provided data to information in the Department’s
National Student Loan Data System to confirm that all students who received Title IV funds
since TUIU became a stand-alone institution were included in the data. We concluded that the
information in the TUIU-provided data was sufficiently reliable to be used in selecting the
sample.

From the data, we selected a random sample of 98 students. The data showed that the 98
students had received Title IV disbursements totaling $980,113. Our sample selection process,
which used stratification of the sampling universe, is described in Table 3.

     Table 3: Sampling Universe, Strata Description, and Number of Student Files Reviewed

                   Number     Number
                      of         of
     Strata                                                 Description of Strata
                  Students    Students
                  in Strata      in
                               Sample
                                         Student received a W in a course in the Fall 2007 or Winter
                                         2008 sessions, and did not receive a C- or higher in these
1 – Withdrawal           3         3     sessions in other courses, if any.
                                         Of the remaining pool of students, student received an F in a
                                         course in the Fall 2007 or Winter 2008 sessions and did not
                                         receive a C- or higher in these sessions in other courses, if
2 – Grade F             50        20     any.
                                         Of the remaining pool of students, student received a D, D-,
                                         D+ in a course in the Fall 2007 or Winter 2008 sessions,
                                         and did not receive a C- or higher in these sessions in other
3 – Grade D             20         5     courses, if any.
                                         Of the remaining pool of students, student received an I in a
                                         course in the Fall 2007 or Winter 2008 sessions, and did not
                                         receive a C- or higher in these sessions in other courses, if
4 – Incomplete         109        35     any.
                                         Of the remaining pool of students, student received a C- or
                                         higher in at least one course if grade(s) were present in the
                                         data in the Fall 2007 session AND student received a C- or
                                         higher in at least one course if grade(s) were present in the
5 – Good Grades        676        20     data in the Winter 2008 session.
                                         The remaining students did not receive any grades during
                                         the Fall 2007 session nor the Winter 2008 session (i.e.,
6 – No Grades          105        15     grades were not present in the data for these students).
Totals                 963        98
Final Report
ED-OIG/A09I0009                                                                      Page 34 of 54

We performed our audit work at TUIU located in Cypress, California, between June 2, 2008, and
October 30, 2008. We held an exit briefing with TUIU officials on January 21, 2009.

We conducted this performance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions
based on our audit objectives. We believe that the evidence obtained provides a reasonable basis
for our findings and conclusions based on our audit objectives.



                            ADMINISTRATIVE MATTERS


Statements that managerial practices need improvement, as well as other conclusions and
recommendations in this report, represent the opinions of the Office of Inspector General.
Determinations of corrective action to be taken will be made by the appropriate Department of
Education officials.

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

                              William J. Taggart
                              Chief Operating Officer, Federal Student Aid
                              U.S. Department of Education
                              830 First Street, NE, Room 112E1
                              Washington, D.C. 20202

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

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


                                             Sincerely,

                                             /s/

                                             Raymond Hendren
                                             Regional Inspector General for Audit

Enclosure
Final Report
ED-OIG/A09I0009                                                        Page 35 of 54


                  Acronyms/Abbreviations Used in this Report


CFO               Chief Financial Officer

CNSSS             CourseNet Management Student System

DCL               Dear Colleague Letter

Department        U.S. Department of Education

FFEL              Federal Family Education Loans

FSA               U.S. Department of Education, Federal Student Aid

FSA Handbook      Federal Student Aid Handbook

GEPA              General Education Provisions Act

HEA               Title IV, Higher Education Act of 1965, as amended

OIG               Office of Inspector General

Pell Grant        Federal Pell Grant Program

TUIU              TUI University
Final Report
ED-OIG/A09I0009                                                                   Page 36 of 54




                                          ENCLOSURE

                                       TUIU’s Comments
TUIU provided several exhibits with its letter. All personally identifiable information
mentioned in the University’s comments was replaced with bracketed text. Because of the
voluminous nature of the exhibits to the University’s comments and the personally identifiable
information within, we have not included them in the enclosure. Copies of the exhibits to the
University’s comments, less the personally identifiable information, are available on request.
Draft Report
ED-OIG/A09I0009                                                                                    Page 37 of 54




                                                TUI University, LLC
                                                TUI Learning, LLC
                                                                                              May 11, 2009


Ms. Beverly A. Dalman
Acting Regional Inspector General for Audit
U.S. Department of Education
Office of Inspector General
501 I Street, Suite 9-200
Sacramento, CA 95814-2559

                                   TUI University
                                   Control Number ED-OIG/A09I0009

Dear Ms. Dalman:

       This is the response of TUI University (“TUIU” or “University”) to the Office of
Inspector General (“OIG”) Draft Audit Report (Control Number ED-OIG/A09I0009), dated
March 2, 2009 (“Report”).

Finding No. 1: TUIU Did Not Have Adequate Policies and Procedures to Ensure
               Student Eligibility and Identify Students Who Had Withdrawn

                 A.       TUIU Policies and Procedures Were Not Designed for
                          Educational Programs with a Nonterm Academic Calendar

        The Report asserts that TUIU “mistakenly concluded that it was delivering educational
programs using a nonstandard term academic calendar” and that TUIU improperly disbursed
Title IV funds on the basis of such mistaken conclusion. (Report, at p. 3). This assertion by the
OIG, which underpins many of the findings in the Report, is not supported by the applicable law
and evidences a misunderstanding of the facts. Further, the Report’s assertion in this regard
ignores the interpretations of the U.S. Department of Education (the “Department”) as
specifically provided to the University. (See Exhibit 1) 1. As such, there is no basis for this
assertion and the Report must be revised accordingly.




1
  The University’s use of both a nonstandard term and nonterm academic calendar was vetted by the Department
following consultation with and a conference call meeting involving TUIU legal counsel and Department
representatives with clear authority and seniority within the Department. (See Exhibit 1, at p. 1-2, Email from
Counsel for TUIU concerning conference call with [Department Officials Names Deleted]). The institution has the
absolute right to rely on such guidance. In re Associated Technical College, Docket No. 91-112-SP, at p. 27 (Initial
Decision Feb. 3, 1993), affirmed by the Secretary (July 23, 1993).
Draft Report
ED-OIG/A09I0009                                                                                     Page 38 of 54

During the Fall 2007, Winter 2008, and Spring 2008 terms, TUIU offered its educational
programs on a nonstandard term academic calendar. The characteristics of a nonstandard term
program are described in the 2007-2008 Federal Student Aid Handbook, as follows:

                 Nonstandard terms are terms (where all coursework is expected to
                 begin and end within a set period of time) that are not semester,
                 trimester, or quarter terms. In some cases, the terms may be of
                 unequal length, though it is also possible with terms of equal
                 length to be considered nonstandard. For instance, a school could
                 offer a program with six consecutive 5-week modules, with each
                 module counting as a nonstandard term.

(Federal Student Aid Handbook, 2007-2008, pp. 3-3 to 3-4. 2 See also Federal Student Aid
Handbook, 2008-2009, p. 3-6). During the referenced terms, the University offered all of its
programs consistent with this definition. The University’s calendar consisted of four 12-week
sessions in which all the courses in each session began and ended on the same date. (See Report,
at p. 4, Table 1). Each course consisted of six modules two weeks in length with the same start
and end date. There is no question that during this period the University offered its programs on
a nonstandard term calendar. In fact, the Department reviewed the University’s operations
during a three-day site visit conducted by program review staff that occurred in October of 2007,
in advance of the issuance of a Program Participation Agreement to Touro University
International as a free-standing entity. As part of that site visit, the Department reviewed, among
other things, individual student files. (Exhibit 2, at pp. 2-2 and 2-4). Therefore, at that time, the
University’s treatment of its educational programs as nonstandard term was evaluated by the
Department. The Department completed its review without comment or concern about such
treatment.

        In arriving at its conclusions, the Report failed to understand the University’s actual
operations and, in doing so, erroneously determined that the University should have used a
nonterm calendar for all of its programs. The Department’s guidance defines a nonterm program
as follows:

        A program that measures progress in credit hours is considered to be using a nonterm
        calendar if it has:

             •   courses that do not begin and end within a set period of time,
             •   courses that overlap terms,
             •   self-paced and independent study courses that overlap terms, or
             •   sequential courses that do not begin and end within a term.

(Federal Student Aid Handbook, 2007-2008, p. 3-5. See also Federal Student Aid Handbook,
2008-2009, p. 3-6). We will respond with respect to each factor in turn.


2
 The Department’s description goes on to say that “the length of the term is not necessarily associated with the type
of credit hours awarded. Some nonstandard terms are the length of a semester (14-17 weeks) but award quarter
credits. Others are the length of a quarter (10-12 weeks) but award semester credits”. This describes precisely how
TUIU offered its programs.
Draft Report
ED-OIG/A09I0009                                                                     Page 39 of 54

Beginning and End Dates

        As support for its conclusions, the Report asserts that TUIU “did not require students to
begin or end courses within the posted dates”. (Report, at p. 4). However, this assertion
inexplicably ignores both the institution’s published calendar and its actual operations. The
Report includes at Table 1 on page 4 a copy of the University’s academic session dates calendar
for the Fall 2007 through February 2009 sessions. The calendar clearly identifies the beginning
and ending dates for all sessions at TUIU. Under the University’s learning model, TUIU
students enroll based on the academic calendar published on the TUIU website. As shown in the
Table, the academic calendar has clearly delineated sessions which are fully defined in student
disclosures and in the course outlines provided to students. Indeed, the University’s students are
unable to access the CNSSS/CourseNet learning environment until the published first day of
class. Further, if a student does not request and receive an incomplete from the University, the
student’s work product is graded and final grades are submitted consistent with the published
academic calendar. It should be obvious that TUIU’s terms did have a clear beginning and
ending date, and its operations were fully consistent with the definition of a nonstandard term
program and not a nonterm program.

Overlapping Terms

       As will be further discussed below, the University acknowledges that some students were
enrolled in overlapping terms, which took place in May, August and November 2008, and those
students were appropriately treated as nonterm students. (See Report, at p. 4, Table 1). Such
treatment of these students as enrolled in nonterm programs while the remaining students were
treated as enrolled in nonstandard term programs is fully consistent with Department
requirements. The University did not utilize overlapping terms prior to May of 2008.

Self-Paced and Independent Study

        The Report erroneously asserts that TUIU “allowed students to enroll in courses almost
every month and complete assignments at their own pace.” (Report, at p. 4). In this assertion,
the Report is clearly confusing flexibility, which is the hallmark of online learning, with a
learning environment that is self-paced. TUIU’s learning model includes a highly structured
pedagogy. Programs and courses are based on clearly defined goals and objectives. Information
in the TUIU Course Guidelines (Exhibit 3, at pp. 3-3 to 3-5) and course syllabi (Exhibit 4, at pp.
4-5 to 4-8, 4-13 to 4-15 and 4-21 to 4-24) clearly articulates the expectations for the student.
Each module has specific due dates. (See e.g., Exhibit 5, at p. 5-3). Students are expected to
submit written assignments and/or participate in threaded discussions with their classmates in
every module in every course so as to achieve the specific learning objectives related to the
overall course objectives within the timeframes established for the module and course. (Exhibit
3, at pp. 3-3 to 3-5; Exhibit 4, at pp. 4-8, 4-15 and 4-23). The University’s programs clearly are
not and were not self-paced or independent study.

Sequential Courses That Do Not Begin and End Within a Term

       The Report asserts that TUIU “allowed students to start courses in the next session while
completing the courses in the prior session.” (Report, at p. 4). This is an incorrect
characterization based on a lack of understanding of the asynchronous pedagogical model of
Draft Report
ED-OIG/A09I0009                                                                                    Page 40 of 54

TUIU. Other than the initiation of limited overlapping sessions in May of 2008, students did not
enroll in overlapping sessions. While the University agrees that to the extent students were
enrolled in overlapping sessions (i.e., sessions in May 2008, August 2008 and November 2008)
those students should be treated as nonterm students, all other students were appropriately treated
as nonstandard term students, as more fully discussed below and as consistent with both the
Department’s requirements and its direct advice to TUIU when asked by TUIU for advice on this
issue.

         Beginning in May of 2008, TUIU did introduce session start dates in the months of May,
August, and November and, as such, beginning on that date, did have certain versions of its
programs that met the definition of nonterm program. However, this change did not ipso facto
cause the University’s nonstandard term programs to be transformed into nonterm programs.
Rather, the University applied a different academic calendar, as it was entitled to do, for different
cohorts of students, appropriately treating some students as enrolled in the nonstandard term
versions of its programs and others in the nonterm versions. TUIU’s treatment of its students is
consistent with the regulations and guidance of the Department which specifically allow
institutions to apply different academic calendars to two versions of the same program. This is
most succinctly and clearly stated as follows:

                 A school may treat two versions of the same academic program
                 (day and night, for example) as separate programs and define
                 different academic years for each version. If your school
                 establishes separate versions of a program, with different academic
                 years, but allows individual students to take courses from both
                 versions, your school must be able to demonstrate which program
                 the student is actually enrolled in.

(Federal Student Aid Handbook, 2007-2008, p. 3-1. See also Federal Student Aid Handbook,
2008-2009, p. 3-1). As demonstrated by the session dates in Table 1 on page 4 of the Report, it
is clear that TUIU offered programs of study on both a nonstandard term basis and a nonterm
basis starting with May 2008. Stated another way, to accommodate differing needs and
circumstances, TUIU served two populations of students: nonstandard term students who started
instruction at the beginning of any term and continued sequential sessions of enrollment
throughout the academic year one term at a time and nonterm students who enrolled in
overlapping terms. In operating in this fashion, the University was in full compliance with
applicable law and guidance.

        As previously noted in footnote 1, the University’s use of both a nonstandard term and
nonterm academic calendar was vetted by the Department following consultation with and a
conference call meeting involving TUIU legal counsel and Department representatives with clear
authority and seniority within the Department. (See Exhibit 1, at p. 1-2– Email from Counsel for
TUIU concerning conference call with Department Officials Names Deleted). The institution
has the absolute right to rely on such guidance. 3 The auditors who conducted the audit site work
resulting in the Report were well aware of the Department’s position in this regard and, yet,
inexplicably have chosen to disregard it in the Report. Under the Department’s own

3
 In re Associated Technical College, Docket No. 91-112-SP, at p. 27 (Initial Decision Feb. 3, 1993), affirmed by the
Secretary (July 23, 1993).
Draft Report
ED-OIG/A09I0009                                                                        Page 41 of 54

interpretation of its requirements, the University is and was entitled to consider students enrolled
in sequential sessions as nonstandard term and students enrolled in overlapping sessions as
nonterm. A review of the student sample reviewed by the OIG reveals that, at most, only four of
the 98 students in the sample were in fact enrolled on a nonterm basis. (See Exhibit 6, at p. 6-2).
Nonetheless, the Report inexplicably treats all of the University’s programs as nonterm. As
such, the basic underpinning of the Report is in error, which, in turn, negates numerous other
assertions in the Report.

       A review of the Report reveals that the OIG’s case relies in substantial part on its
conclusion that the University’s policy of granting certain nonstandard term students an
incomplete grade and allowing those students to finish their coursework on an extended basis
somehow converts nonstandard term programs into nonterm programs. However, such a
conclusion is not supported by any Title IV requirement and constitutes a clear violation of the
General Education Provisions Act (“GEPA”). GEPA prohibits all agencies of the Federal
government, most notably the U.S. Department of Education, from dictating curricular choices or
otherwise interfering with an institution’s pedagogical decisions based on federal education laws
or programs. Specifically, Section 1232a provides:

               No provision of any applicable program shall be construed to
               authorize any department, agency, officer, or employee of the
               United States to exercise any direction, supervision, or control over
               the curriculum, program of instruction, administration, or
               personnel of any educational institution, school, or school system,
               or over the selection of library resources, textbooks, or other
               printed or published instructional materials by any educational
               institution or school system, or to require the assignment or
               transportation of students or teachers in order to overcome racial
               imbalance.

20 U.S.C. § 1232a (emphasis added). Under the Report’s analysis, the OIG, an agency of the
federal government, is telling institutions when it is appropriate or not appropriate to grant an
incomplete grade. There could not be any more obvious instance of the federal government
involving itself in an institution’s pedagogical decisions.

         Furthermore, it is standard practice for an institution of higher education to establish a
policy of granting incompletes to a student when, in the opinion of the instructor, the student’s
circumstances warrant such an extension. This is indeed the purpose of the “Incomplete” grade.
In and of itself, an “Incomplete” is not a “punitive” grade: it affords the student the opportunity
to complete the required course work within a reasonable period of time as defined by the
institution in order to receive credit for the course. When that timeframe coincides with a
student’s subsequent enrollment in another course, there may be created an overlap, since the
student is also attending courses for the current term. A good example is the University of
California, Berkeley, which allows students nearly a full year (well into the next term or terms)
to complete coursework when a student has been assigned an incomplete. (Exhibit 7, at pp. 7-2
and 7-3). Similarly, at Murray State University, students are allowed until the last day of classes
in the student’s next term of enrollment to replace a grade of “Incomplete” for the student’s
previous term of enrollment. (Exhibit 8, at pp. 8-4). At George Mason University, students have
Draft Report
ED-OIG/A09I0009                                                                                  Page 42 of 54

until well into the fall term to submit coursework for spring term incompletes. (Exhibit 9, at p.
9-3). Under the Report’s interpretation, any institution, such as those identified, that grants
incomplete grades and allows students to complete coursework on a date that is in a subsequent
term could be retroactively turned into nonterm institutions. This certainly cannot be a correct or
intended application of the law.

         It is important to understand certain key characteristics of the University’s student
population. TUIU serves a substantial number of U.S. military servicemembers, with a
significant proportion of those deployed outside the continental United States. Under these
circumstances it is understandable – indeed inescapable – that TUIU will have students who
reasonably require an incomplete grade. There is nothing in the Department’s requirements that
in any way could be construed to limit the number of incompletes an institution can grant. An
institution may do so when the circumstances warrant, and an institution that serves a large
number of men and women whose studies may necessarily be secondary to their military
obligations – including significant numbers in combat deployments – will necessarily be more
free in making that allowance. The decision to grant an incomplete, and the terms under which a
student can convert the incomplete to a final grade, are exclusively within the academic
discretion of the institution. The OIG’s interpretation not only violates the specific prohibitions
set forth in GEPA but would impose an unwarranted hardship on the men and women who have
forsaken the comfort of a classroom to serve and protect the nation. Therefore, there is no basis
for the Report’s conclusions in this regard.

        The misapplication of the relevant law and guidance and misunderstanding of the nature
of TUIU’s operations inevitably led the OIG to erroneously conclude that all TUIU programs are
nonterm. That, in turn, provides the basis for the OIG’s mistaken finding that the University
misapplied the Title IV requirements concerning the timing of and student eligibility for
disbursements of Title IV funds, incorrectly substituting nonterm requirements for the correct
requirements applicable to nonstandard terms. Contrary to the Report’s assertion, TUIU did not
incorrectly classify its programs as nonstandard term and therefore improperly disburse Title IV
funds to its students. 4 For all but a trivial few, the University correctly disbursed Title IV funds
consistent with the regulations and guidance for educational programs using a nonstandard term
academic calendar. 5 Any assertion to the contrary is not supported by either the facts or the law.




4
  As discussed more fully above, at most, four students in the Audit Period were actually enrolled in a nonterm
program (which overlapped the conduct of nonstandard term programs for the vast majority of students). Therefore,
the maximum error rate is approximately 4%, well below the Department’s standard of materiality. (Exhibit 6, at p.
6-2).
5
  Specifically, Title IV funds were scheduled and disbursed pursuant to 34 C.F.R. § 668.4(a) which states that the
payment period for the scheduled disbursements is the academic term (i.e., semester, trimester, quarter, or
nonstandard term). TUI scheduled four disbursements of Title IV funds over the period of an academic year, one
disbursement for each session. TUI’s academic year consisted of two payment periods, two disbursements per
payment period. Pursuant to 34 C.F.R. § 668.4, TUI was not required to measure the progress of its students in the
successful completion of credit hours and instructional weeks before making any subsequent disbursement for
students enrolled in its nonstandard term programs.
Draft Report
ED-OIG/A09I0009                                                                        Page 43 of 54

               B.      TUIU’s Procedures Did Not Ensure That Students Were Participating in
                       Academic Activity at the Time of the Title IV
                       Disbursements

        The Report asserts that the University “did not have policies and procedures in place to
confirm that students had begun attendance in the session prior to making Title IV
disbursements.” (Report, at p. 6). Based on this assertion, the Report directs the University to
repay $7,259 in Federal Pell Grant funds and $135,410 in Federal Family Education Loan
program funds. The University does not agree that its initial Title IV disbursements were
inappropriate. TUIU students are prepared to commence each course session on a specific
schedule; indeed, as noted above, students are unable even to access the online component of the
course prior to that commencement date. The University’s asynchronous learning model,
specifically adopted to accommodate the time-challenged demands of servicemembers, does
allow for some flexibility as to when a student submits assigned coursework after the system is
opened at the start date of the course. The University reviewed the files of the students included
in the OIG’s assertion of this repayment liability using standards consistent with those utilized by
the OIG in its review. Four of these students established eligibility for the Title IV funds
disbursed based on attendance during the session or were granted an incomplete grade consistent
with institutional policy and submitted coursework following that “incomplete”. (See Exhibit
10, at p. 10-2). In any event, TUIU’s high completion rate, which, for example, approaches 99%
for students on active duty with the Navy, calls into doubt both the relevance of this finding and
the validity of the OIG’s sampling methodology, which appears to have significantly
exaggerated the significance of this issue. Even assuming for the sake of argument that the
assertion of liability for this issue is legally defensible, the amounts are significantly overstated.
Notably, the OIG has failed to apply the required “Actual Loss Formula,” the application of
which to the liabilities asserted with respect to this finding is required by the Department’s
policy and practice, and which would result in a significantly reduced assertion of liability.

         Even though TUIU believes its procedures were consistent with the Title IV requirements
and the nature of its programs, TUIU has implemented various procedures to improve the
documentation of student eligibility at the time of disbursement of Title IV funds, which includes
revised procedures for confirming the engagement of a student in an academically-related
activity prior to disbursing Title IV funds. TUIU has added a new feature, Financial Aid (FA)
Activity, to the CourseNet module in its integrated learning management software package,
CourseNetManagement. “FA Activity” allows real time review of enrollment data for students
flagged as anticipating the receipt of Title IV program funds in any particular session. The
display shows the first and last dates of academic activity. Under the University’s revised
disbursement procedures, at the end of the first two weeks of each session, TUIU’s financial aid
staff reviews the student’s activity status in the CourseNet System as well as other eligibility
criteria in the CNSSS Student Services module. If this review establishes that the student has
met the appropriate eligibility criteria, including academic activity, the Director of Financial Aid
directs the Bursar to disburse the student’s Title IV funds. If the eligibility check shows that the
student has not engaged in expected academic activity or has failed to meet other eligibility
criteria, Title IV funds are not applied to the student’s account and are returned to the appropriate
Title IV programs. This eligibility check is done at the time of release of Title IV funds, at the
time of receipt of Title IV funds in the University’s bank account and prior to the disbursement
of Title IV funds to the student’s account if more than two business days has passed since the
University last conducted an eligibility check.
Draft Report
ED-OIG/A09I0009                                                                                    Page 44 of 54

         University personnel have also been reminded during internal training and at staff
meetings with all applicable personnel (Academics Affairs, Financial Services, Finance,
Information Technology, and Student Resources) of the importance of counseling students
regarding academic engagement throughout the course and the importance of the diligent and
timely updates of student records. The University believes this training will assist it in ensuring
that its policies are consistently applied.


                 C.       TUIU Did Not Have Policies or Procedures for Identifying Students That
                          Had Withdrawn Without Providing Official Notification to the Institution

        The Report asserts that TUIU “had no policies to address circumstances when students
ceased attendance without notifying the institution and no procedures to identify such students
for purposes of performing return of Title IV calculations.” (Report, at p. 7).

       First, as previously noted, the Department reviewed the University’s operations prior to
granting its predecessor free-standing status. That review included a review of student files as
well as a review of relevant policies such as the University’s Return to Title IV policies. (See
Exhibit 2, at pp. 2-2 and 2-4). There were no issues raised with respect to the policies then in
place covering unofficial student withdrawals or the operation of those policies. 6

        As noted in the Report itself, the University employed detailed procedures to ensure that
the University contacted students who had ceased participating. Indeed, as discussed below, the
actual instances of such errors were substantially lower than those asserted in the Report. 7
Instances of unofficial withdrawals are, in fact, uncommon, which is consistent with the
University’s low overall withdrawal rate and its procedures for outreach to non-participating
students. Nonetheless, during the OIG site visit, in an effort to address the OIG’s concerns,
TUIU further revised its unofficial withdrawal policy. That policy, as described in Exhibit 11, at
p. 11-2, has been fully implemented.

       In addition, TUIU’s Academic Affairs division will continue its proactive outreach to
apparently non-participating students, an effort which significantly reduces both total
withdrawals and, specifically, unofficial withdrawals. The University’s Academic Affairs
Retention Unit has formalized and recorded its procedures and practices for managing students
who are having difficulty sustaining consistent participation in assigned coursework. A
summary of those procedures is attached as Exhibit 12, at p. 12-2.




6
  We would note that the OIG relies in large part on Dear Colleague Letter, GEN 04-03 Revised (February 2004, as
revised November 2004) for this finding. Although U.S. Department of Education guidance can provide a “safe
harbor” for institutions, such guidance does not have the force and effect of law. In re Waukegan School of Hair
Design, Docket No. 96-66-SP, at pp. 5-7 (Initial Decision Aug. 23, 1996), affirmed by the Secretary (Sept. 8, 1997).
As such, it cannot provide a basis for assessment of liability against an institution.
7
  The OIG selected significantly higher percentages of students with “F”s and “incompletes” than in the population
as a whole and a significantly lower percentage of students with good grades compared to the population as a whole.
We believe this overstates the significance of any asserted errors with respect to this finding.
Draft Report
ED-OIG/A09I0009                                                                                       Page 45 of 54

                    D.       TUIU’s Deficient Policies and Procedures Resulted in
                             Improper Disbursements and Failure to Return Title IV
                             Funds for Withdrawn Students

        The Report asserts that as a result of TUIU’s “deficient” policies and procedures, TUIU
“improperly disbursed Title IV funds to students who did not become eligible for disbursements
for the second payment period until after the disbursements were made, improperly disbursed
Title IV funds to students who had not begun attendance at the time of disbursement, and failed
to return Title IV funds for students who ceased attendance without providing formal notice to
the institution.” (Report, at p. 9). As has been discussed, above, the Report’s analysis fails to
take into account applicable law and TUIU’s operations and therefore does not support the
findings in this Report. Most importantly, as previously discussed, for all but four students in the
sample, amounting to 4% of the universe, the application of nonterm requirements by the OIG
was inappropriate.

        The University has reviewed each of the institutional records of students included in the
calculation of liability in Table 2 (Report, at p. 10), utilizing the standards of the OIG in the
Report, although applying the rules for nonstandard term programs rather than the OIG’s
erroneously applied nonterm rules. This response will address each category of error in turn.

Category A: Ineligible for Disbursement – Student Did Not Attend Session

         TUIU’s review of the students 8 within this category has determined that four of the 27
students cited actually established eligibility for the Title IV funds disbursed. This would
decrease the asserted liability under this category by $16,625. (See Exhibit 13, at p. 13-2 for
liability analysis).

Category B:        Return of Title IV: Student Withdrew Without Providing
                   Official Notification

        TUIU’s review of the sample students establishes that only nine of the 30 students cited
in the Report as liabilities under this category actually required a return of Title IV calculation
for one or more of the terms for which the OIG considered them a liability. The asserted liability
must therefore be reduced by a total of $116,151. (See Exhibit 14, at pp. 14-2 to 14-3 for the
analysis of the liability reduction). In undertaking its review, TUIU used the academic grade
report in CNSSS to determine whether a student who did not receive at least one grade with
attendant quality points nevertheless completed the period. TUIU’s academic grade report
shows the grade received for each course, the credits earned for each course, the quality points
earned for each course and the grade point average for the session. For purposes of its analysis,
TUIU assumed that a student who earned no quality points unofficially withdrew unless TUIU
was able to establish that the failing grade (i.e., a grade with zero quality points) was earned,
consistent with the provisions of Dear Colleague Letter, GEN 04-03 Revised (February 2004, as
revised November 2004). In addition, TUIU reviewed the files of students who completed 60%
or more of the payment period to ensure that 100% of the scheduled funds were earned by the
student. TUIU also reviewed the files of students who were Ph.D. candidates to confirm the


8
    TUIU’s review utilized the same basis and standards utilized by the OIG for this category of student.
Draft Report
ED-OIG/A09I0009                                                                     Page 46 of 54

students were making progress toward the completion of their dissertation or coursework and
confirmed that no return of Title IV calculation was required.

Category C:   Early Disbursement

       With respect to this category, we note that the Report indicates that 42 students out of the
sample received early disbursements (with no related liability). (Report, at p. 10). However, had
the OIG utilized the proper standards for each student with respect to nonterm versus
nonstandard term, there would be no instances of error in this category.


               E.     TUIU’s Inadequate Policies and Procedures Impacted Title IV Funds
                      Disbursed to Students Before TUIU Separated from Touro College

       As noted throughout this response, the University’s operations were in substantial
compliance with the Title IV requirements throughout the Audit Period. As such, there is no
material liability to be asserted for the period prior to October 16, 2007.


               F.     Recommendations

       Based on the OIG’s faulty analysis, the Report make various recommendations which we
address individually as presented in the Report.

1.1   Develop and implement policies and procedures that comply with the requirements for
      administering Title IV programs for educational programs using a nonterm academic year.

      As explained in the above response, TUIU was not required by Department of Education
regulations to establish policies and procedures for using a nonterm academic year for
enrollment periods prior to May 2008. The institution does have and has had policies and
procedures to address the small number of students who actually enroll in its nonterm academic
programs. (See Exhibit 15, at pp. 15-2 to 15-6).

1.2   Develop and implement policies and procedures to appropriately confirm student eligibility
      at the time of Title IV disbursements.

        As noted above, the University believes that its existing procedures were compliant with
Title IV requirements but has moved to improve these policies as noted in this response.

1.3   Develop and implement policies and procedures for identifying students who withdraw
      without providing notification and performing return of Title IV calculations for such
      students.

      As noted above, the University believes that its existing procedures were compliant with
Title IV requirements but has moved to improve these policies as noted in this response.

1.4   Return to the Department the $7,906 ($7,259 + $647) in Pell Grant funds that we identified
      in our student sample as due for improper disbursements and withdrawn students.
Draft Report
ED-OIG/A09I0009                                                                      Page 47 of 54


       TUIU has returned to the Department $7,906 in Federal Pell Grants funds consistent with
this recommendation solely in order to close this finding.

1.5   Return to lenders the $184,634 ($135,410 + $49,224) in FFEL disbursements (plus interest
      and special allowances incurred by the Department on the related FFELs) that we identified
      in our student sample as due for improper disbursements and withdrawn students.

       As noted above, the asserted liability is significantly overstated both because of the OIG’s
methodology and because the OIG failed to apply the Actual Loss Formula to its assertions of
liability.

1.6   Notify the TUIU students, which we identified in our student sample as having not earned
      the $3,057 of Pell Grant funds at the time of their withdrawal, of the amounts they need to
      repay to the Department.

     Based on TUIU’s recalculations, these Federal Pell Grant funds are not due back from the
students.

1.7   Conduct 100 percent review of students who received Title IV disbursements on or after
      October 16, 2007 to identify other amounts to be returned to lenders and the Department
      for disbursements to ineligible students and withdrawn students and return those amounts
      (plus the interest and special allowances incurred by the Department on the related FFELs).
      For the 963 students in our sampling universe, we estimated that $923,379 of the $8.6
      million of Title IV funds disbursed should be returned to lenders and the Department for
      disbursements made to TUIU students during the period October 16, 2007 through June 3,
      2008 (creation date of TUI-provided file).

      Given the errors in the Report, TUIU feels this review should be unnecessary. However, in
the interim, the Department has requested a similar file review covering the period October 16,
2007 through June 30, 2008 based on TUIU’s compliance audit. The results of this file review
will be provided to the Department shortly and will make this recommendation moot.

1.8   We recommend that the Acting Chief Operating Officer for Federal Student Aid determine
      the amount of Title IV funds that were improperly disbursed or not returned for withdrawn
      students for periods prior to October 16, 2007, and take action to recover the Title IV funds
      or other administrative actions, as appropriate.

        As noted above, because the University’s operations were in substantial compliance with
the Title IV requirements, there is no material liability to be asserted for the period prior to
October 16, 2007.
Draft Report
ED-OIG/A09I0009                                                                      Page 48 of 54


Finding No. 2: TUIU Has Not Demonstrated the Ability to Adequately Administer
               Title IV Programs

               A.     TUIU Did Not Have an Adequate Policy on Academically-Related
                      Activities for Purposes of Administering Title IV Programs.

        The Report asserts that TUIU “did not have a written policy on what constituted
academically-related activities” during the Audit Period. (Report, at p. 13). This is simply
incorrect: students did have written notice of the academic activity requirements in the course
syllabi presented on the CD-ROMs provided students as well as in the online version of the
courses. (Exhibit 4, at pp. 4-7 to 4-8, 4-14 to 4-15 and 4-22 to 4-23). In addition, the
requirements and protocols are set forth on the Course Guidelines page to which every student is
directed via a link in the course syllabi. (Exhibit 3, at pp. 3-3 to 3-4).

        The Report states that TUIU’s explanation of what constituted academically-related
activity was not consistent with the applicable regulation, suggesting in particular that certain
academic counseling activities between faculty and students did not constitute academically-
related activities. The applicable regulation, 34 C.F.R. § 668.22(c)(3)(ii), provides:

               An “academically-related activity” includes, but is not limited to,
               an exam, a tutorial, computer-assisted instruction, academic
               counseling, academic advisement, turning in a class assignment or
               attending a study group that is assigned by the institution.

By its terms, the list in the definition is not exclusive. In fact, it cannot be exclusive and must
include the “but is not limited to” language because anything else would impermissibly interfere
with an institution’s pedagogical decisions under the previously discussed GEPA provisions.
Furthermore, the regulation specifically includes academic counseling and advisement along
with substantive coursework as academically-related activity. The University’s definition of
academically-related activity was fully within the regulatory definition contrary to the assertions
in the Report.


               B.     TUIU Did Not Properly Determine the Number of Weeks of
                      Instruction in Its Academic Year

        The Report asserts that TUIU’s defined academic year included weeks in which no
instructional activity occurred and therefore that the actual academic year was 40 weeks rather
than 48 weeks. A review of the sampled students shows that significant academic activity did
take place in the weeks questioned by the OIG. Furthermore, even assuming the OIG is correct,
the University’s academic year was still significantly longer than the required minimum. As
such, there is no adverse Title IV implication. Indeed, the University has been significantly more
protective and conservative in its use of Title IV funds than necessary under the Department’s
regulations.
Draft Report
ED-OIG/A09I0009                                                                     Page 49 of 54

        Nonetheless, TUIU has reviewed the structure of its educational programs and revised the
structure of the sixth module to clarify what is required by the student in such modules and made
revisions in its academic year definition consistent with applicable regulatory requirements.


               C.     TUIU Did Not Have Procedures for Applying Tuition Discounts
                      When Determining a Student’s Cost of Attendance

         The Report asserts that TUIU did not revise its cost of attendance for government
employees and residents of California who are provided with a tuition discount. First of all,
there is nothing in the statutory definition that requires such an adjustment. California residents
and government employees are a very small percentage of the University’s student population.
The cost of attendance is specifically intended to be an average of expenses for students at an
institution rather than actual expenses, as recognized by the OIG in the Report. Therefore, the
cost of attendance as utilized by the University is consistent with the Title IV requirements.
Furthermore, even assuming the OIG’s argument is correct, the budget adjustment for discounts
would not have impacted any student’s Title IV eligibility as stated in the Report. Nonetheless,
TUIU has revised its practices to use an adjusted cost of attendance for California residents and
government employees. (See Exhibit 16, at pp. 16-2 to 16-3).


               D.     TUIU Improperly Certified New FFELs for Continuing Students
                      When TUIU Became a Stand-Alone Institution

       The Report asserts that TUIU failed to consider the loan period or loan period amounts
disbursed during the transition to a stand-alone institution. The University notes that TUIU
handled these loan certifications consistent with instructions received from the Department in
order to ensure that TUIU’s students were not over awarded during the transition due to
overlapping loan periods. TUIU is continuing to review the student files to confirm that no
students were over awarded or received the incorrect loan type or amount and will return any
loan funds or make any adjustments, as necessary.
Draft Report
ED-OIG/A09I0009                                                                     Page 50 of 54

               E.     TUIU Officials Were Unaware of Requirements for
                      Title IV Programs Training

        The Report asserts that TUIU’s “Director of Financial Aid and the CFO were not aware
of the Title IV training requirements” until advised of those requirements by the OIG audit staff.
(Report, at p. 16). The applicable requirement is that training be completed “no later than 12
months after the institution executes its program participation agreement” by the institution’s
Title IV administrator and its chief administrator or his or her designee. 34 C.F.R.
§ 668.13(a)(2). The University believes that the auditors misunderstood the role of the Chief
Financial Officer as that role was defined during their initial meeting in May of 2008. [Name
Deleted], Chief Financial Officer, was designated only as the “audit liaison” for the initial
meetings with the OIG beginning in May, 2008. [Name Deleted] was not the chief administrator
designated at that time to attend the necessary training. As such, the CFO was under no
obligation to undertake the training requirements in May of 2008. The Report’s assertion with
regard to the CFO does not implicate TUIU’s administrative capability in any way.

        Furthermore, the University’s Chief Executive Officer, [Name Deleted], and TUIU’s
Director of Financial Aid, [Name Deleted], were always fully aware of the training requirements.
The University had one-year from the change of ownership, until October of 2008, to have
appropriate personnel attend the “Fundamentals of Title IV Administration” or other compliant
training. During the transition to free-standing status, [Name Deleted] from the Department
worked with the University staff on developing a plan to attend the required training. In
December of 2007, well before the OIG’s site visit, the Director of Financial Aid at that time,
[Name Deleted], attended the EAC Conference in San Diego. This was the first step taken to
begin financial aid training under TUI University. By agreement with [Name Deleted], [Name
Deleted] also completed additional on-line training via SFA Coach. [Department Official Name
Deleted]r was notified of [Former Director of Financial Aid Name Deleted] completion of such
training before October of 2008.

        In addition, subsequent to the decision to move the Financial Aid Department under the
auspices of the Chief Financial Officer, the CFO registered for and completed the Title IV
training in September 2008, and provided his completion certificate to [Department Official
Name Deleted]. (Exhibit 17, at p. 17-2). The Associate Vice President for Academic Affairs,
[Name Deleted], also attended the Fundamentals of Title IV Training in February 2009 (Exhibit
17, at p. 17-6) as did the current Director of Financial Aid,[Name Deleted]. (Exhibit 17, at p.
17-4). In addition, both the Chief Financial Officer and the current Director of Financial Aid
undertook additional training with the California Association of Student Financial Aid
Administrators in December of 2008. (Exhibit 17, at pp. 17-3 and 17-5).

        Since the site visit, TUIU has taken significant steps to add to its resources in the
financial aid arena. TUIU has hired a new Director of Financial Aid, [Name Deleted]. [Director
of Financial Aid Name Deleted] has more than 20 years experience in the financial aid field
covering a broad range of responsibilities, including as a financial aid director, a financial aid
auditor and a financial aid accountant. In addition, TUIU has contracted the services of The
Higher Education Assistance Group, Inc., a third-party servicer with twenty years in the
business, to assist the University in its delivery of Title IV funds to students. The third-party
servicer has been contracted to determine student eligibility, award funds per the student’s
determined eligibility, package students per the University’s packaging guidelines and assist with
Draft Report
ED-OIG/A09I0009                                                                    Page 51 of 54

eligibility checks in the disbursement of funds. TUIU will continue to develop, evaluate, and
implement policies and procedures for the administration of the Title IV programs to ensure that
it remains compliant with the federal regulations governing the administration of such programs.
The University is also developing programs and options in its CourseNet system that will
automate more of the required tasks that an institution must complete when awarding and
disbursing Title IV funds.


              F.      Recommendations

       Based on the OIG’s faulty analysis, the Report makes various recommendations which
we will address individually as presented in the Report.

       2.1   Take appropriate action under 34 C.F.R. § 668, Subpart G to fine, limit, suspend or
             terminate the participation of TUIU. [Renumbered in Final Report to 2.2]

       As noted throughout this response, the Report seriously overstates any non-compliance
by the University. As such, no further action is warranted or appropriate. To the extent there
were any compliance issues, the University has taken significant steps to rectify those issues.
The University only achieved stand-alone status in October 2007 and the OIG investigation
began in May 2008. At the time of the OIG investigation, the institution was already fully in the
process of reviewing policies and procedures, obtaining the required financial aid training as
recommended by [Department Official Name Deleted], reviewing its financial aid operations
with consultants and actively seeking legal advice, as necessary, in the area of Title IV
administration. The University takes and will continue to take seriously the need for full
compliance with all Title IV program requirements.

       2.2   Require TUIU to develop and implement a written policy on the definition of
             academically-related activity that complies with 34 C.F.R. § 668.22(c)(3)(ii).
             [Renumbered in Final Report to 2.3]

        As noted above, TUI’s definition of academically-related activity was fully compliant
with applicable Title IV program requirements but the University has revised its definition
consistent with the OIG’s position.

       2.3   Require TUIU to establish the length of its academic year using the definition in
             34 C.F.R. § 668.3(b). [Renumbered in Final Report to 2.4]

        As noted above, TUI’s definition of its academic year was fully compliant with the Title
IV requirements. Nonetheless, TUIU has revised its definition consistent with the OIG’s
position and the provisions of 34 C.F.R. § 668.3(b).

       2.4   Confirm that TUIU has developed and implemented procedures for adjusting its
             standard budget for the cost of attendance when students receive tuition discounts.
             [Renumbered in Final Report to 2.5]

       As noted above, TUIU’s cost of attendance fully complied with the Title IV
requirements. Nonetheless, TUIU has developed and implemented procedures for adjusting its
Draft Report
ED-OIG/A09I0009                                                                     Page 52 of 54

standard budget cost of attendance when students receive tuition discounts consistent with the
OIG’s directives. (See Exhibit 16, at pp. 16-2 to 16-3).

        2.5   Confirm that TUIU has completed the necessary actions to correct the FFELs that
              were not properly certified for students who were attending TUIU when it became a
              stand-alone institution. [Renumbered in Final Report to 2.6]

         TUIU is reviewing its records and will make any necessary adjustments or repayments
with respect to Federal Family Education Loan program loans that it determines were not
properly certified for students who were attending TUIU when it became a stand-alone
institution, if any.

        2.6   Confirm that TUIU’s President, Director of Financial Aid, and other staff complete
              appropriate training on the administration of Title IV programs. [Removed from
              Final Report]

       As noted above, the University was fully compliant with the Title IV training
requirements. In fact, along with the personnel required to take the training, the University’s
Associate Vice President of Academic Affairs also completed the training. (See Exhibit 17, at p.
17-6).

        2.7   Confirm that TUIU has demonstrated that it is capable of adequately administering
              Title IV prior to removing the provisional aspect of the Program Participation
              Agreement certification that ends on December 31, 2009. [Renumbered in Final
              Report to 2.1]

       In this response, the University has fully established that it has the administrative
capability necessary to administer the Title IV programs.

        If you have any questions or need any additional information, please do not hesitate to
call.
                                             Sincerely,

                                             /s/

                                             Robert Tormey
                                             Chief Financial Officer

Enclosures
     Draft Report
     ED-OIG/A09I0009                                                                 Page 53 of 54

                                           EXHIBIT INDEX


#    EXHIBIT TITLE                                                                   EXHIBIT PAGE #’s
1    Email dated July 23, 2008, from [Name Deleted], Dickstein Shapiro LLP,          p. 1-2
     Counsel to TUIU, to [Name Deleted], U.S. Department of Education, and [Name
     Deleted], U.S. Department of Education.

2    Email dated August 28, 2007, from [Name Deleted}, Institutional Review          pp. 2-2 to 2-3
     Specialist, U.S. Department of Education, to [Name Deleted} Touro University
     International, and [Name Deleted], Dow Lohnes PLLC, re on-site pre-
     certification site visit.

2    Email dated September 14, 2007, from [Name Deleted}, Dow Lohnes PLLC, to        p. 2-4
     [Name Deleted] Institutional Review Specialist, U.S. Department of Education,
     and [Name Deleted] transmitting Touro University International documentation
     and information requested by U.S. Department of Education for site visit.

3    Course Guidelines                                                               pp. 3-2 to 3-11

4    TUI University: Syllabus Home Page, ORG602, Organizational Studies II,          pp. 4-5 to 4-12
     [Name Deleted]
4    TUI University: Syllabus Home Page, BHE302, Introduction to Health              pp. 4-13 to 4-20
     Education, [Name Deleted]
4    TUI University: Syllabus Home Page, MAE506, Law and Ethics in Education,        pp. 4-21 to 4-26
     [Name Deleted]

5    Assignment Due Dates: Winter 2009                                               pp. 5-2 to 5-3

6    Chart identifying four students enrolled in overlapping terms.                  p. 6-2

7    University of California, Berkeley’s Liberal Arts College, Undergraduate        pp. 7-2 to 7-4
     Advising, College of Letters & Science, 2008 - 2009 Academic Calendar

8    Murray State University Registrar’s Office Spring 2009 Calendar                 pp. 8-2 to 8-5

9    George Mason University, Office of the Registrar, Fall 2009 Academic Calendar   pp. 9-2 to 9-3

10   Chart of Exceptions to Non-Participating Student Liability                      p. 10-2

11   TUIU Withdrawal Policy                                                          p. 11-2

12   Retention Outreach Procedures                                                   p. 12-2
     Draft Report
     ED-OIG/A09I0009                                                                  Page 54 of 54

#    EXHIBIT TITLE                                                                    EXHIBIT PAGE #’s
13   Chart of Exceptions to Non-Participating Student Liability (Category A           p. 13-2
     Liabilities)

14   Chart of Liability Reduction with respect to liabilities related to withdrawal   pp. 14-2 to 14-3
     policy (Category B Liabilities)

15   TUIU Policies for Nonterm Academic Calendar                                      pp. 15-2 to 15-6

16   Procedures: 2008/2009 Student Budget                                             pp. 16-2 to 16-3

17   Certificate for Successful Completion of Fundamentals of Title IV                p. 17-2
     Administration awarded by the U.S. Department of Education to [Name Deleted],
     September 15-19, 2008

17   Certificate of Completion awarded by the California Association of Student       p. 17-3
     Financial Aid Administrators to [Name Deleted], December 6-7, 2008

17   Certificate for Successful Completion of Fundamentals of Title IV                p. 17-4
     Administration awarded by the U.S. Department of Education to [Name Deleted],
     February 2-6, 2009

17   Certificate of Completion awarded by the California Association of Student       p. 17-5
     Financial Aid Administrators to [Name deleted], December 6-7, 2008

17   Certificate for Successful Completion of Fundamentals of Title IV                p. 17-6
     Administration awarded by the U.S. Department of Education to [Name Deleted],
     February 2-6, 2009