oversight

Audit Followup Process for External Audits in Federal Student Aid.

Published by the Department of Education, Office of Inspector General on 2004-09-16.

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

                            UNITED STATES DEPARTMENT OF EDUCATION

                                               OFFICE OF INSPECTOR GENERAL




                                                   September 16, 2004




                                                                                                       CONTROL NUMBER
                                                                                                        ED-OIG/A19-E0002

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

Dear Ms. Shaw:

This Final Audit Report, (Control Number ED-OIG/A19-E0002), presents the results of our
audit of the audit followup process for external audits in Federal Student Aid (FSA). This audit
was part of a review of the audit followup process for Office of Inspector General (OIG) external
audits being performed in several principal offices. A summary report will be provided to the
Chief Financial Officer, the Department of Education (Department) audit followup official, upon
completion of the audits in individual principal offices.


                                                  BACKGROUND

Office of Management and Budget (OMB) Circular A-50, entitled “Audit Followup,” provides
the requirements for establishing systems to assure prompt and proper resolution and
implementation of audit recommendations. The Circular states,

       Audit followup is an integral part of good management, and is a shared
       responsibility of agency management officials and auditors. Corrective action
       taken by management on resolved findings and recommendations is essential to
       improving the effectiveness and efficiency of Government operations.




                               400 MARYLAND AVE., S.W. WASHINGTON, D.C. 20202-1510

         Our mission is to ensure equal access to education and to promote educational excellence throughout the Nation.
Ms. Theresa S. Shaw	                                                                          Page 2 of 10



The Department established a Post Audit User Guide (Guide) to provide policy and procedures
for the audit resolution and followup process. 1 The Guide states,

        Each Assistant Secretary (or equivalent office head) with cooperative audit
        resolution or related responsibilities must ensure that the overall cooperative audit
        resolution process operates efficiently and consistently.

The Guide also provides that as an Action Official (AO), the Chief Operating Officer’s
responsibilities include,

    •	 Determining the action to be taken and the financial adjustments to be made in resolving
       findings in audit reports concerning respective program areas of responsibility,
    •	 Monitoring auditee actions in order to ensure implementation of recommendations
       sustained in program determinations, and
    •	 Maintaining formal, documented systems of cooperative audit resolution and followup.


                                           AUDIT RESULTS

FSA’s audit followup process was not always effective. We found that FSA inappropriately
relied on subsequent single or compliance audits for assurance that issues noted in some OIG
audits were corrected. In addition, FSA did not always obtain or maintain documentation to
provide assurance that corrective actions were taken. As a result, FSA did not have assurance
that corrective actions were implemented, and the risk remains that related programs are not
effectively managed.

We also noted that corrective actions were still in process for five audits that were reported as
“closed” in the audit resolution system. This issue is addressed in the OTHER MATTERS
section of this draft report.

FSA responded to our draft report, concurring with the results and supporting the
recommendation provided. FSAdescribed specific corrective actions it has taken and intends to
take to address the issues noted. FSA also responded that it had corrected the status of the audits
discussed in OTHER MATTERS. The full text of the FSA response is included as Attachment 3
to this audit report.




1
  The Post Audit User Guide, draft version dated January 2, 2001, was in effect during the scope of our audit. The
Guide was updated and reissued March 31, 2003. The statements quoted are also included in the current version of
the Guide.

                                               ED-OIG/A19-E0002
Ms. Theresa S. Shaw	                                                              Page 3 of 10




Finding 1	 Federal Student Aid Audit Followup Process Was Not Always
           Effective
FSA’s audit followup process was not always effective. We reviewed audit followup activities
for 27 OIG audits of FSA programs that inc luded a total of 136 external recommendations. We
found FSA inappropriately relied on subsequent single or compliance audits for assurance that
issues noted in OIG audits were corrected for 7 of the 27 audits reviewed (26 percent). We also
found FSA did not obtain or maintain documentation to provide assurance that corrective actions
were taken for an additional 5 of the 27 audits reviewed (19 percent). In total, we found that
FSA did not have assurance that requested corrective actions were completed for 31 of the 136
recommendations (23 percent) in 12 of the 27 audits reviewed (44 percent).


Audit Followup Requirements:

OMB Circular A-50 states,

        Each agency shall establish systems to assure the prompt and proper resolution
        and implementation of audit recommendations. These systems shall provide for a
        complete record of action taken on both monetary and non- monetary findings and
        recommendations.

The Department’s Post Audit User Guide, Section III, Chapter 5, Part B, states:

        Primary responsibility for following up on nonmonetary determinations rests with
        AOs, who must have systems in place to ensure that recommended corrective
        actions are implemented by auditees.

Part B of the Guide further states, “Accurate records must be kept of all audit followup activities
including all correspondence, documentation and analysis of documentation.”

OMB Circular A-133, “Audits of States, Local Governments, and Non-Profit Organizations,”
provides standards for audits of non-Federal entities expending Federal awards (single audits).
Follow up on prior audits is addressed in several sections of the circular. However, the auditor is
only required to follow up on prior single audits, not on other audits performed by OIG or other
entities.

Single auditors are also required to follow generally accepted government auditing standards.
The 1994 revision to Government Auditing Standards (GAS) required that auditors follow up on
known material findings and recommendations from previous audits that could affect the
financial statement audit. In the 2003 revision to GAS, the definition of previous audits includes
financial audits, attestation engagements, performance audits, or other studies. However, the
auditor is only required to follow up on significant findings and recommendations that directly
relate to the objectives of the audit being undertaken.

                                        ED-OIG/A19-E0002
Ms. Theresa S. Shaw	                                                                      Page 4 of 10




Reliance on Subsequent Single or Compliance Audits Did Not Always Provide Assurance that
Corrective Actions Were Completed

We noted that audit resolution staff inappropriately relied on subsequent single audits or
compliance audits for assurance that corrective actions from OIG audits were completed. We
identified two major categories where this occurred:

1.	     Audit resolution staff requested the institution to ensure that their independent auditors
        review and comment on the completion of certain corrective actions in subsequent single
        or compliance audit reports. In these cases, resolution documents issued to the external
        entities requested corrective actions similar to the following:

            The auditor during the next regularly scheduled audit must review and comment on
            this area of program operations to ensure that Dowling College is performing monthly
            reconciliations of school and servicer data. 2

        However, we found that the independent auditors did not include the requested review or
        comment as requested in the subsequent audit reports.

2.	     Audit resolution staff stated in some cases they relied on single audits for assurance that
        corrective actions were completed. They cons idered the problem corrected if the
        subsequent single audits did not contain findings similar to those reported by OIG.
        However, we found that the subsequent single audit reports did not always contain
        statements that showed the independent auditor consid ered the findings reported by OIG
        or the completion of the corrective actions requested by FSA in conducting their audit.
        Single audit requirements do not ensure that follow up on prior OIG audits is performed.
        Prior OIG audits may not be determined to be “material” or “significant” by the auditor,
        or may not affect or directly relate to the objectives of the single audit, and as such
        followup procedures may not be performed.

        For example, an audit resolution document required an institution to implement a
        monitoring system to detect students who enroll but do not attend school. The document
        stated that a review of the school’s independent auditor report showed no major program
        violations. However, we reviewed three subsequent independent auditor reports and
        determined there was no specific mention as to whether or not the auditors considered the
        implementation of the requested monitoring system in conducting their audit. 3


2
 Final Audit Determination letter dated December 15, 1997, for Audit Control Number A02-70001, “Audit of the
Direct Loan Program Administered by Dowling College,” issued October 6, 1997.
3
  Final Audit Determination Letter dated September 6, 2002, for Audit Control Number A02-B0006, “Audit of
Drake College of Business’s Compliance with the Title IV, Higher Education Act Program Requirements,” issued
March 5, 2002.

                                             ED-OIG/A19-E0002
Ms. Theresa S. Shaw                                                                               Page 5 of 10



Overall, we determined that FSA’s reliance on subsequent single or compliance audit reports to
document the completion of corrective actions was not adequate for 22 of the 136
recommendations (16 percent) in 7 of the 27 audits reviewed (26 percent). In these cases, the
subsequent single or compliance audits did not mention the area involved in the OIG audits, or
whether follow up was performed on the OIG audit findings.

Although FSA relied on the completion of subsequent single or compliance audits to document
the completion of corrective actions, there was no documentation that showed the results of the
audits were reviewed and reconciled to the outstanding corrective action requests. As such, FSA
did not identify instances where the reports did not specifically address these areas.

Interim Audit Memorandum Issued:

An interim audit memorandum entitled, “Use of Single Audits for Followup on OIG Audits,”
was issued to FSA on March 18, 2004. In its response, FSA agreed to review and revise its
procedures to ensure schools implement corrective actions on external OIG audit findings. FSA
stated,

           FSA will no longer use single audits to ensure that schools take appropriate
           corrective actions on OIG audits. FSA will develop and implement procedures
           for its audit resolution staff to request documentation directly from the auditees to
           support actions were completed.

On April 9, 2004, in response to the memorandum, FSA issued interim guidelines relating to
followup on OIG external audits. In these guidelines FSA stated:

           [W]e will no longer rely on the prior audit section of subsequent audits for
           documentation that corrective actions have been taken. Instead we will require
           the institutions to submit documentation of the completion of corrective action to
           the audit resolution staff prior to closing the audit.

The guidelines also provide preliminary procedures for audit resolution and closure.


Documentation of Corrective Actions Was Not Always Obtained/Maintained.

FSA was not always able to provide evidence that showed requested corrective actions were
completed. We found that FSA was not able to provide documentation in a timely manner,
initial documentation provided was not complete, and ultimately, documentation was not
available to support the completion of corrective actions for 9 of the 136 recommendations (7
percent) in 5 of the 27 audits (19 percent) reviewed.

During our audit, FSA’s Schools Channel staff did not always provide all documentation for
audit resolution and followup activities in an effective manner. 4 This occurred with respect to

4
    The Financial Partners Channel staff within FSA provided files relating to four other audits in a timely manner.

                                                  ED-OIG/A19-E0002
Ms. Theresa S. Shaw                                                                 Page 6 of 10



initial requests for resolution documentation and subsequent requests for documentation
supporting the completion of corrective actions. FSA did not have hard copy audit resolution
files, but maintained information on an electronic system. However, this system did not
effectively lend itself to retrieving all related data for a particular audit. FSA staff encountered
difficulties identifying and providing requested data in a timely manner.

To illustrate, in response to our initial request for audit resolution documentation, FSA provided
information for 25 of the 35 audits in our universe (71 percent), but not until seven weeks after
the request was made. FSA indicated that the documentation for the remaining 10 audits would
be provided the following week, but they did not provide this documentation. FSA indicated that
the delay in providing documentation was due to staff availability to access the data, and because
they wanted to provide documentation supporting both resolution and the completion of
corrective actions. However, the information FSA eventually provided did not include
documentation that showed the completion of corrective actions. The data initially provided
included only audit resolution documents.

FSA later provided information in response to our request for all documentation related to audit
followup activity for our sample of audits. This information for 23 selected audits was provided
another seven weeks after our request. We reviewed the documentation and submitted referrals
to FSA relating to potential areas of concern. In response, FSA provided additional clarification
or information not previously identified for 10 of the 23 audits (43 percent).

Subsequent to the resolution of the audits we reviewed, the Department established additional
guidelines that expand upon the documentation requirements for audit resolution files. The
Department’s “Guidelines for Establishing File Folders and Maintaining Documentation For
External Audits,” were effective as of September 1, 2002, and state that audit resolution files
should contain “All documentation pertaining to audit follow-up activities, e.g., documentation
from the auditee substantiating the corrective action taken….” These guidelines are provided as
Attachment 2 to this report.


Alert Memorandum Issued:

A related issue on audit resolution documentation was reported to FSA in an alert memorandum
issued on May 4, 2004. In its response, FSA stated,

        Procedures will be established to ensure that appropriate audit resolution files are
        maintained and document all actions taken to resolve findings of external OIG
        audits. Such procedures will take into consideration established OMB and
        Department guidelines....


In instances where FSA relied on subsequent single or compliance audits, they did not have
assurance that the auditors reviewed areas in the OIG audits, or that the issues noted in the OIG
audit were corrected. When FSA did not obtain or maintain appropriate documentation to show
requested corrective actions were completed, it did not have assurance that identified

                                         ED-OIG/A19-E0002
Ms. Theresa S. Shaw	                                                               Page 7 of 10



deficiencies were corrected. As such, the risk remains that related programs are not effectively
managed.


Recommendations

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

    1.1	     Develop and implement procedures to ensure that OIG audit areas and related
             corrective actions are reviewed and commented on in subsequent single or
             compliance audit reports, if these reports are used by audit resolution staff to gain
             assurance that corrective actions were completed.

    1.2	    Ensure that all future recommended corrective actions are fully implemented and
            adequate documentation is obtained and maintained to support the completion of all
            corrective actions, in accordance with the Department’s external audit documentation
            and file requirements.

    1.3	    Ensure that recordkeeping relating to audit followup activities, in compliance with
            guidance established by OMB and the Department, is included in the procedures FSA
            will be establishing for audit resolution files.


                                      OTHER MATTER

Corrective Actions Are Still Underway for Five FSA Audits

At the time of our review, 5 of the 27 audits (19 percent) of FSA programs were reported as
closed in the Department’s audit tracking system, although resolution or followup activity was
still ongoing. In total, 23 of the 136 recommendations (17 percent) we reviewed were associated
with audits inappropriately reported as closed in the Department’s current audit tracking system.
The five audits are detailed below:


 •	 Audit Control Number (ACN) A09-80023, “Academy Pacific Business and Travel College
    Eligibility to Participate in Title IV Programs,” issued December 21, 1998. The audit was
    closed in the prior audit tracking system as of August 31, 2001. Corrective actions to
    address two recommendations had not been finalized. The Department withdrew a request
    for a compromise and stated they would redetermine the audit liability.

 •	 ACN A06-80008, “Audit of Capital City Trade and Technical School, Inc. Compliance with
    the 85 Percent Rule,” issued February 15, 2000. The audit was reported as closed in the
    prior audit tracking system as of December 31, 2000. Corrective actions to address two
    recommendations had not been finalized. FSA stated that the audit was being reexamined


                                         ED-OIG/A19-E0002
Ms. Theresa S. Shaw	                                                             Page 8 of 10



      to determine whether a fine action might be appropriate rather than seeking a repayment
      liability for an 85/15 violation.

 •	 ACN A06-80013, “Hallmark Institute of Aeronautics’ Compliance With The 85 Percent
    Rule,” issued March 6, 2000. The audit was reported as closed in the prior audit tracking
    system as of March 29, 2002. Corrective actions to address two recommendations had not
    been finalized. FSA stated that the audit was being reexamined to determine whether a fine
    action might be appropriate rather than seeking a repayment liability for an 85/15 violation.

 •	 ACN A06-B0011, “Livingstone College’s Compliance with the Title IV, Student Financial
    Assistance, Verification Requirements,” issued March 29, 2002. The audit was reported as
    closed in the prior audit tracking system as of September 30, 2002. At the time of this
    review, corrective actions to address three recommendations were not completed because
    the audit determination remained under appeal.

 •	   ACN A05-A0028, “The Illinois Student Assistance Commission’s Administration of the
      Federal Family Education Loan Program Federal and Operating Funds,” issued March 30,
      2001. The audit was reported as closed in the prior audit tracking system as of January 31,
      2002. At the time of our review, corrective actions to address 12 recommendations were
      not completed because the audit determination remained under appeal. The Department had
      not defined corrective actions for two additional recommendations pending policy
      development and issuance.

Although the separate reporting of audits as resolved or closed was limited under the
Department’s prior tracking system, the current system does allow audits to be separately
reported as resolved or closed.

OCFO staff are implementing enhancements to the Audit Accountability and Resolution
Tracking System (AARTS) that will allow a change in the status of an audit after it is closed. If
corrective actions for these audits are still ongoing once these enhancements are complete, we
suggest FSA reopen the audits in AARTS to correctly reflect the status as resolved, but not
closed. Until the enhancements are completed, FSA should keep OCFO apprised of the status of
corrective actions for the audits so that the audits may be appropriately reported as resolved, but
with corrective action still in process, in Department management reports and in the Semiannual
Reports to Congress.


                       OBJECTIVE, SCOPE, AND METHODOLOGY

The objective of our audit was to evaluate the effectiveness of the Department’s process to ensure
that external auditees implement corrective action. To accomplish our objective, we reviewed
applicable laws and regulations, and Department policies and procedures. We conducted
interviews with FSA staff responsible for resolving and following up on corrective actions for the
audits selected. We also reviewed documentation provided by FSA staff to support the corrective
actions taken for the recommendations included in our review.

                                        ED-OIG/A19-E0002
Ms. Theresa S. Shaw                                                           Page 9 of 10




The scope of our audit included OIG audits of FSA programs at external entities issued during
the period October 1, 1997, through September 30, 2002. The audits in the scope were reported
by the Department’s audit resolution system as having been “closed” on or prior to September 30,
2002. We excluded certain audits from our scope including those relating to year 2000
initiatives, and alternative products. A total of 38 FSA audits, representing 181
recommendations, met the scope of our audit.

To select FSA audits for review, we evaluated the status of the recommendations and corrective
actions required by the Department. We judgmentally selected all FSA audits that included
monetary findings for this review. We excluded any internal and non-sustained
recommendations included in these audits from our review. Overall, we selected 27 audits and
136 recommendations for review. The selected audits are listed on Attachment 1.

We relied on computer-processed data initially obtained from OIG’s Audit Tracking System to
identify OIG audits issued during the scope period. We reconciled this data to the Department’s
Common Audit Resolution System (CARS), and to audits reported in OIG’s Semiannual Reports
to Congress to ensure that we had captured all audits issued during the period. We also reviewed
copies of the audit reports to ensure the audits met the scope period under review. We confirmed
data in the audit reports to data in the Department’s AARTS, which replaced CARS in July 2003.
Based on these tests and assessments, we determined that the computer-processed data was
reliable for meeting our audit objective.

FSA utilized an electronic system to maintain audit resolution and followup documentation for
23 of the 27 OIG audits. We did not perform an analysis to assess the contents and controls
relating to the system. Instead, we requested that FSA provide all relevant documentation from
this system during our review for the audits selected. We subsequently reviewed this
documentation to assess the adequacy of audit followup.

We conducted fieldwork at Department offices in Washington, DC, during the period Nove mber
2003 through June 2004. We held an exit conference with FSA staff on June 15, 2004. Our
audit was performed in accordance with government auditing standards appropriate to the scope
of the review described above.


                  STATEMENT ON MANAGEMENT CONTROLS

As part of our review, we assessed the system of management controls, policies, procedures, and
practices applicable to the audit followup process for OIG external audits of FSA programs. Our
assessment was performed to review the level of control risk. Because of inherent limitations, a
study and evaluation made for the limited purpose described above would not necessarily
disclose all material weaknesses in the management controls. However, our assessment disclosed
management control weaknesses that adversely affected FSA’s ability to ensure corrective
actions were taken by external entities in response to audits of FSA programs. These weaknesses
and their effects are fully discussed in the AUDIT RESULTS section of this report.

                                       ED-OIG/A19-E0002
Ms. Theresa S. Shaw                                                             Page 10 of 10




                            ADMINISTRATIVE MATTERS


Corrective actions proposed (resolution phase) and implemented (closure phase) by your office
will be monitored and tracked through the Department’s Audit Accountability and Resolution
Tracking System (AARTS). Department policy requires that you deve lop a final corrective
action plan(CAP) for our review in the automated system within 30 days of the issuance of this
report. The CAP should set forth the specific action items, and targeted completion dates,
necessary to implement final corrective actions on the finding and recommendation contained in
this final audit report. OIG Standard Language, OIG Policy Manual, page 2560-16

In accordance with the Inspector General Act of 1978, as amended, the Office of Inspector
General is required to report to Congress twice a year on the audits that remain unresolved after
six months from the date of issuance.

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

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.

We appreciate the cooperation provided to us during this review. Should you have any questions
concerning this report, please call Michele Weaver-Dugan at (202) 245-6941. Please refer to the
control number in all correspondence related to the report.


                                        Sincerely,




                                         Helen Lew /s/

                                         Assistant Inspector General for Audit Services



Attachments




                                        ED-OIG/A19-E0002
                                                                                       Attachment 1


                         FSA Audits Included in This Review

Number   Audit Control                     Report Title                         Report Issue Date
           Number
  1       A02-70001      Audit of the Direct Loan Program Administered by      October 6, 1997
                         Dowling College

  2       A09-80023      Academy Pacific Business and Travel College           December 21, 1998
                         Eligibility to Participate in Title IV Programs
  3       A05-80008      Antonelli College’s Administration of Student         February 19, 1999
                         Financial Assistance Programs
  4       A05-90009      East-West University’s Administration of the          May 18, 1999
                         Student Financial Assistance Programs

  5       A09-80029      Pacific Travel Trade School Eligibility to            June 11, 1999
                         Participate in Title IV Programs
  6       A05-80016      City Colleges of Chicago’s Administration of the      July 23, 1999
                         Federal Pell Grant Program
  7        06-80011      Audit of Texas Careers’ Compliance With the 85        August 6, 1999
                         Percent Rule
  8        06-80012      Audit of Collegiate Systems Inc Compliance With       August 9, 1999
                         the 85 Percent Rule
  9       A05-90002      The Illinois Student Assistance Commission’s          December 29, 1999
                         Administration of the Federal Family Education
                         Loan Program Federal and Operating Funds
  10      A06-80008       Audit of Capital City Trade and Technical School     February 15, 2000
                         Inc Compliance with the 85 Percent Rule
  11      A09-90011      Platt College - San Francisco Administration of       February 28, 2000
                         Title IV Programs
  12      A06-80013      Hallmark Institute of Aeronautics’ Compliance         March 6, 2000
                         With The 85 Percent Rule
  13      A05-90053      St Augustine College’s Administration of the          March 8, 2000
                         Federal Student Financial Assistance Programs for
                         the 1998-99 award year
  14      A09-70022      University of Phoenix’s Management of Student         March 31, 2000
                         Financial Assistance Programs
  15      A06-90004      Review of Student Financial Aid Compliance at         August 7, 2000
                         Success Institute of Business
  16      A06-90012      Review of Student Financial Aid Compliance at the     August 8, 2000
                         International Institute of Chinese Medicine

  17      A05-90052      Mount Senario College’s Administration of the Title   September 14, 2000
                         IV HEA Programs for the Period July 1, 1998
                         through June 30, 1999

  18      A05-90054      Audit of the Title IV Higher Education Act            September 28, 2000
                         Programs Administered by Cleveland State
                         University Cleveland, Ohio
                                                                                     Attachment 1


Number   Audit Control                    Report Title                         Report Issue Date
           Number

  19      A05-A0002      Audit of Great Lakes Higher Education                March 30, 2001
                         Corporation’s Federal Family Education Loan
                         Programs
  20      A05-A0028      The Illinois Student Assistance Commission’s         March 30, 2001
                         Administration of the Federal Family Education
                         Loan Program Federal and Operating Funds
  21      A05-B0007      Audit of the Michigan Guaranty Agency’s              September 25, 2001
                         Administration of the Federal Family Education
                         Loan Program Federal and Operating Funds
  22      A06-B0013      University of Arkansas at Little Rock’s Compliance   September 28, 2001
                         with the Title IV Student Financial Assistance
                         Verification Requirements
  23      A06-B0009      Southwest Texas State University Compliance with     September 28, 2001
                         the Title IV Student Financial Assistance
                         Verification Requirements
  24      A02-B0006      Audit of Drake College of Business’s Compliance      March 5, 2002
                         with the Title IV Higher Education Act Program
                         Requirements

  25      A09-B0017      Audit of Glendale Career College's Administration    March 18, 2002
                         of the Higher Education Act Title IV Programs
  26      A06-B0026      South Texas Vocational Technical Institute –         March 20, 2002
                         Brownsville’s Administration of the Title IV
                         Student Financial Assistance Programs
  27      A06-B0011      Livingstone College’s Compliance with the Title IV   March 29, 2002
                         Student Financial Assistance Verification
                         Requirements
                                                                                  Attachment 2


          Guidelines for Establishing File Folders & Maintaining Documentation 

                                    For External Audits 

                              (Effective September 1, 2002)


The following procedures are set forth as guidelines for establishing file folders and
maintaining accurate and complete documentation on all actions taken to resolve findings
of external audits of ED programs.

   1.	 An official audit resolution file folder should be established for each audit report.

   2.	 Each file folder should contain, at a minimum, the following documents:
          •	 The Federal Audit Clearinghouse’s audit cover sheet titled “Audit Description
               Data”
          •	 Copy of the CARS generated “Summary of Findings Requiring Resolution”
          •	 Copy of the audit report or pages of the audit report that provide relevant
               information to the resolution of the audit findings, including the findings, the
               auditee’s corrective action plan or response to the findings, the section on the
               status of prior year findings, and the ED portion of the Schedule of Expenditures
               of Federal Awards
          •	 A listing of the triage decisions for each audit finding
          •	 Documentation of all correspondence and communication with the auditee, the
               auditor, and other appropriate individuals, including corrective action plans and
               necessary work papers
          •	 Copy of the PDL [Program Determination Letter]
          •	 Copy of the Audit Clearance Document (ACD)
          •	 All documentation pertaining to audit follow-up activities, e.g., documentation
               from the auditee substantiating the corrective action taken, results of any
               monitoring visits, relevant information from the next year’s audit that reports
               whether appropriate corrective action was taken on a prior year finding.
          •	 Documented evaluations or conclusions of the PO [Principal Office] that support
               the adequacy of the corrective actions taken by the auditee, if not included in the
               PDL and/or occurring after the PDL is issued

   3. Each official file folder should also contain, as appropriate, the following documents:
         •	 Documented evidence of technical assistance provided
         •	 OGC [Office of General Counsel] and ED-OIG comments
         •	 ED-OIG concurrence/non-concurrence of PDLs for all audits issued by ED-OIG
             or in which the audit has questioned costs of $500,000 or more
         •	 In the event an Administrative Stay has been requested and approved, all
             documents pertaining to the request for an Administrative Stay, e.g., the request
             and approval memoranda
         •	 In the event an auditee requests a grantback, all documentation pertaining to the
             grantback
                                           FEDERAL
                                           STUDENT AID                      Attachment 3
                                           '" H.1p Pa.t ~ n",. Sd.ooI




                               CHIEF OPERATING OFFICER


Ms. Michele Weaver-Dugan, Director                                        AUG   3 2004
Operations Internal Audit Team
U.S. Department of Education
Office of Inspector General
400 Maryland Avenue, SW
Washington, DC 20202-1510

Dear Ms. Weaver-Dugan:

Thank you for the opportunity to review and comment on the draft audit report entitled,
Audit Fo/low-up-FSA External Audits, ED-OIG/AI9-E0002, issued on July 9,2004.

Federal Student Aid (FSA) recognizes the importance of the audit function to program
integrity and continually seeks to improve the effectiveness of the audit resolution
process. Follow-up on the implementation of appropriate and effective corrective actions
is an important part ofFSA's ongoing commitment to program integrity. Therefore, we
are pleased that your report acknowledges FSA's responsiveness to your interim report
findings.

As you know, we agreed with you that FSA's internal controls on external OIG audits
could be enhanced to ensure that corrective action is taken, and we moved quickly to
change our procedures and improve controls over our follow-up activities for OIG audits
in April ofthis year. In July, we also implemented new procedures to ensure our
processes for requesting Administrative Stays on OIG audits were in compliance with the
Department's procedures.

Recommendation 1.1 in this draft report has already been addressed: FSA developed and
implemented new procedures on April 9 to ensure corrective actions are completed.
Recommendations 1.2 and 1.3 will be addressed by the end of September.

The enclosure provides our response to each recommendation. Again, we appreciate the
opportunity to review and comment on the draft report.




                                              Theresa S. Shaw

Enclosure

cc:    Pat Howard
                         830 First Street, NE, Washington, D.C. 20202 

                                        1-800-4-FED-AID 

                                     www.studentaid.ed.gov 

Response to Draft Audit Report-Audit Follow-up-FSA External Audits, ED­
OIG/A19-E0002


Recommendation 1.1: Develop and implement procedures to ensure that OIG audit areas
and related corrective actions are reviewed and commented on in subsequent single or
compliance audit reports, if these reports are used by audit resolution staff to gain
assurance that corrective actions were completed.

Response: Effective April 9, FSA no longer uses single audits to ensure that schools
take appropriate corrective actions on OIG audits. FSA developed and
implemented new procedures that require audit resolution staff to request
documentation directly from the auditee to support that corrective actions have
been completed.

Recommendation 1.2: Ensure that all future recommended corrective actions are fully
implemented and adequate documentation is obtained and maintained to support the
completion of all corrective actions, in accordance with the Department's external audit
documentation and file requirements.

Response: We are implt~menting audit follow-up procedures for OIG audits that
require FSA audit resolution staff to obtain and maintain adequate documentation
to support the completion of corrective actions in OIG audits in accordance with the
Department's external audit documentation and file requirements.

Recommendation 1.3: Ensure that recordkeeping relating to follow-up activities, in
compliance with guidance established by OMB and the Department, is included in the
procedures FSA will be establishing for audit resolution files.

Response: We are implementing audit follow-up procedures for OIG audits that
include procedures for establishing audit resolution files. These recordkeeping
requirements will be in (:ompliance with guidance established by OMB and the
Department.

Other Matters: Corrective actions are still underway for five FSA audits. We suggest that
FSA reopen the audits in AARTS to correctly reflect the status as resolved, but not
closed.

Response: The status of the five audits is being corrected in the Audit
Accountability and Resolution Tracking System (AARTS) to reflect that they have
been resolved. Further, Academy Pacific Business and Travel College's audit has
since been closed. Therdore, the system will be updated to reflect that the current
status of that audit is closed.