1. Session C-29 Program Compliance 101
Las
Vegas
Session C-29
Program Compliance 101
An Inside Look at the Operations of the School Participation Teams
Douglas Parrott
Geneva Leon
U.S. Department of Education

2. Program Compliance Office, FSA Victoria Edwards, Chief Compliance Officer
School eligibility
Financial institutions oversight
Integrated partner management
Administrative actions & appeals
Performance improvement & procedures
The Program Compliance office is within the Federal Student Aid at the U.S. Department of Education. The primary focus is providing integrated oversight and management improvement services to participating entities. This includes monitoring activity to determine whether entities meet regulatory requirements for eligibility, administrative capability, and financial responsibility. The office is divided into 5 primary areas:
School Eligibility (Schools eligibility & oversight & is the focus of this discussion)
Financial Institutions Oversight – (Lenders, GA, Servicers)
Integrated Partner Management-(Provide IT support)
Administrative Actions & Appeals (Handles Subpart G, Subpart H & other appeals)
Performance Improvement & Procedures (Provides expert functional & procedures support) 2

3. Domestic Schools & Funding By Type
Proprietary
1,836
27.7%
Public
1,944
29.3%
Proprietary
$13.3B
17.4%
Public
$37.2B
48.6%
Priv. Non Profit
$25.4B
33%
Priv. Non Profit
2,012
30.3%

4. School Eligibility - Foreign Schools Update
2007 Foreign School Population (FFEL Only)
20,624 Students
$525 M
1.0% Default Rate
Loan Volume
Eligible Schools
2007 Funding
% of Funds
$500,000 + 93
19.3%
$473,848,671
90.3%
$100,000 – 499,999
168
34.85%
$ 42,606,192
8.1%
$1 – 99,999
173
35.9%
$ 8,441,800
1.6%
None 48
9.95% --
TOTALS
482
100%
$ 524,896,663
Insert (x% of federal student loans)

5. School Elig: Ensuring Program Integrity
Annual Financial Statements
Annual Compliance Audits
Comprehensive Compliance Review
What we will cover in this presentation:
Comprehensive Compliance Review
Recertification (full or provisional):
Revocation & Denials
New schools on 1 year provisional
Change of ownership on provisional up to 3 years
Annual financial statements
Annual compliance audits
Program reviews
Method of Payment
Eligibility & Recertification
Program Review
Method of Payment

6. Comprehensive Compliance
Review-CCR
Every year, Over 50% Schools Reviewed
Eligibility Reviews (e.g., Recertifications, CIOs)
Compliance Audits with Deficiencies
Financial Statements that Do Not Conform
Statistical Analysis of School or Student Data
Program Review

7. CCR: School Oversight OVERSIGHT ACTIVITIES FY07 3,498 (56%) 1,874*
Comprehensive Compliance Review
3,498 (56%)
Eligibility and Re-certification
1,874*
Deficient Audit
1,457*
Flagged Financial Statements
1,351*
Completed Merger/CIO
129*
Program Reviews
99*
Of the 6,145 school’s that were eligible to participate in FY 2007, 56% (or 3,498) were given a comprehensive compliance review.
Total funding of all schools was $72.7 Billion; CCR covered $43.7 Billion (or 60.1%)
Fewer Program Reviews conducted because staff were redirected on internal office and system improvements. FY08 will should a significant increase (closer to 200)
* A school may be counted in 1 or more of these activities

8. CCR: Data Anomalies
Perform statistical analysis of student & school data
Identify data anomalies & develop action plan
Take follow-up actions & evaluate
Examples
Dependency Override
Verification
AGI Inconsistencies
Recipients over age 65

9. Eligibility & Recertification (Begins w/E-App)
Perform Acceptability Review
Review Electronic File & Supporting Documentation, Request Add’l Information
Analyze Information Submitted & Verify w/ Accreditor and State
Confirm School’s Policies Meet Requirements
Examine the School’s Website for Additional Information

10.
This is the website that enables you to:
Check the Status of your Application
Display your PPA/ECAR - Once FSA’s review completed, sent to school informing PPAs are Available
School reviews/prints/signs PPA
Returns 2 PPAs to ED for final approval
ED mails signed PPA

11. Changes that require 10 day notification only thru E-App:
Name, Address, Phone, Fax
Principals:
President, CEO, CFO, FAA, Board
Owners who can influence
3rd Party servicers
Academic Measurement
Closure of a Location
Change in Governance
New Locations*
New Programs*
*unless required to “apply for” & wait for approval
We want to remind schools that the following institutional changes require reporting within 10 days of the change. The institution is not required to seek approval of these changes, but must submit them through the E-App process.
New Locations, if not provisionally certified, on cash monitoring, did not acquired assets of another school, are not subject to default rate sanction, and not otherwise restricted by FSA
New Educational Programs that are the same or similar vocation or same or lower degree.

12. Eligibility Changes Requiring Application & Approval Prior to Awarding Title IV Funds
New Educational Programs
Higher Level Offerings, New Vocational Programs, Short-term Programs
New Locations, if
Provisionally Certified, On Cash Monitoring, Acquired Assets of Another School, Subject to Default Rate Sanction, or Otherwise Restricted by FSA
Changes in Accreditation, Licensure, Structure
Adding New Title IV Programs
Not appropriately applying and waiting for approval to participate under these conditions can result in a liability being assessed for any Title IV Funds disbursed. We want to highlight with area of updates particularly to help you avoid these errors and the potential liability associated with them.

13. School Eligibility - Oversight Activities
Action
# Schools (FY07)
Revocation 1
Denial (Initial, Recert, CIO) 25
Voluntary Withdrawal 20
Loss of Elig (Other) 68
Action
# Schools (FY07)
Provisional Certification
1,253
Heightened Cash Monitoring
438
Letter of Credit (LOC)
454

14. Provisional Reasons Late Submission of Audits, E-App
Unresolved Program Review or Audit Significant Findings
Provisional Alternative-Letter of Credit
Deficiencies in Administrative Capability
Cohort Default Rates Exceeding Thresholds
Restrictions Imposed by Accreditor & State

15. Ez-Audit System Provides Instant Audit Info Identifies Overdue Audits
Provides Instant Audit Info
Identifies Overdue Audits
Streamlined FSA Review Process
Non-editable PDF file (official record) Retained & Used to Validate Data
Add’l Changes to Reduce Reporting Burden
EzAudit Strengthened Internal Financial Management & Controls
Streamlined FSA review process (assignment, resolution, approval)

16. Acceptability Review Process
Audits Reviewed for Acceptability & Completeness (Source document is compared to data entered)
Incomplete Notice Posted to the eZ-Audit if not Accepted (return within timeline provided)
Findings are Identified & Sent for Additional Resolution if Necessary
Financial Failures & Adverse Disclosures (i.e. Contingent Liabilities, Debt Agreement Violations, Reviews & Investigations) Identified & Sent for Resolution
Audits need to be GAAP/GAGAS or A-133 for Public schools and private non-profits with over $500,000 in Federal funds. Note that many schools try to be treated below the $500,000 threshold because they disbursed under $500,000 in Title IV funds, but many times they receive other federal funds and cross the threshold, as a result they are required to submit a complete A-133 audit.
Financial .PDF Attachments Viewable
Institution entered the correct audit period
Confirm the auditor report opinion (Unqualified, Qualified, Adverse, Disclaimed, Going Concern Paragraph) Unqualified is good-no issues, “clean opinion”. Qualified (Includes some type of exception can be a single deviation from GAAP or Scope limitation (sample Inventory not tested) Adverse Opinion - auditor indicating that a company's financial statements are misrepresented, misstated, and do not accurately reflect its financial performance and health. Adverse opinion it implies wrongdoing.
For A-133 schools, opinion could be on anything the auditor is reviewing - not limited to Title IV issues
Verify line items in composite score.

17. Financial Responsibility
ED Determines by Reviewing Audited Financial Statements (34 CFR § & 34 CFR §668.15) for the Following:
With an Initial, Recertification, or Reinstate Application to Participate
With a CIO/Merger Application
Annually Submitted Audited Financial Statements
Primary review of financials are required for initial applications, change in ownership, and flagged annual financial statements. 17

18. Add’l Financial Review Tasks
Review Zone Reporting Requirements
Administer Letters of Credit
Release Institutions from Zone, Provisional & LOC Alternatives
Assess Violations of Debt Payment, Financial Obligation & Past Performance Standards
Perform Pre-Acquisition Review for CIO
Make Quality Control Referrals to OIG
Method of payment changes for failing financials.
FA’s have to reconcile LOC’s. Currently a manual process because of two recording systems and they do not always match.
We rarely get Zone reports from schools and most of the times there is nothing we can do with the information. Example: Owner takes out money.
FYE are routine following change in ownership so that the FYE matches the new owners, but when a school tries to change to a new fiscal year to beat the system then we have a problems. Example would be a school submitting late audits tries to switch to new fiscal year end to get a better composite score. No regulatory basis to prevent a C-Corp from changing FYE, but an S-Corp has to have a 12/31 FYE.

19. Letters of Credit New Institutions minimum 50% LOC only
Participating Institutions –
10% LOC (minimum), Provisional Certification, Zone Reporting Requirements, HCM-1 or HCM-2 or
50% LOC (minimum) Considered Financially Responsible
FY 2007: 454 Schools on LOC’s ($298.5 M)
50% LOC provision is included in the PPA if school is undergoing a recertification. 19 19

20. Integrated Partner Mgmt (IPM)
(Phase I: E-App, Ez-Audit, Lender App)
User Interface w/ Additional Help Features
Easier Navigation & Single Entry Point for FSA Service
Increased Partner Security Using a Unique Entity Identifier (Routing Identifier or RID)
Proactive Communications w/Partners, Notifying in Advance When Submissions/Information- Due to FSA
More Electronic Information & Electronic Signatures (App & PPA)
We decreased the # of data entry items in Ezaudit to reduce reporting burden.
In the Future IPM will replace current electronic Application (eAPP), eZ-Audit, and Lender Application (LAP) features and will modernize the way Partners (such as Institutions, Lenders, and Guaranty Agencies) submit their eligibility application to participate in Title IV funding, maintain this eligibility, enroll for services and submit their Financial Statements and Compliance Audit data.
The main benefits of the IPM solution include:
a consistent user interface with additional help features,
easier navigation through Application and Submission questions,
a single entry point for signing up for the services provided by Federal Student Aid.
increased Partner security using a unique entity identifier (Routing Identifier or RID),
proactive communications with Partners, notifying in advance of when submissions or information is due to FSA, and
information between Partners and FSA will be electronic to IPM, thus reducing the risk of lost paper applications or documents (App & PPA).
We will keep partners informed about important cutover information from the current legacy systems to IPM.

21. External Review Process
Audits (Annual & OIG)
Program Reviews (ED & GA)
Purpose of External Reviews
Evaluate if Institutions are Properly Administering Title IV Programs
Fulfill Oversight Responsibilities for Title IV Programs
School Participation Teams have several tools to monitor Program Integrity. Audits and Program Reviews are 2 such tools and are used to measure an institution compliance with Title IV requirements.
Institutions that receive funds from the Federal Student Aid Programs must submit an annual audit to the Department. For Profit-A certified independent public accountant (IPA) must prepare the non-federal compliance and financial audit using the SFA Audit Guide posted by OIG. Public/NonProfit-A independent public accountant or state auditor prepares the audit under the Single Audit Act-OMB Circular A-133. These audits are submitted through Ezaudit and those with deficiencies are resolved by the School Participation Teams. ED’s OIG may also conduct an audit of selected schools, which cover cash management, institutional and student eligibility, and/or associated internal controls. SPTs also resolved these audits.
Program Reviews are mandated by law with priority given to high default issues; significant funding fluctuations, deficiencies noted by State licensing or Accreditor, high dropout rates, or any other issue that may pose a significant risk or failure to comply with Title IV requirements.
The overall purpose of external reviews is to evaluate if an institution is properly administering Title IV programs; and to fulfill ED’s oversight responsibilities, which includes requiring corrective actions and assessing liabilities for errors in performance.

22. Audit Resolution Process
ED Performs Acceptability Review
Teams Perform Further Analysis of Compliance Audits w/Deficiencies & CCR
Teams can Contact School or Auditor to Requesting or Clarify Information (may include a total file review)
Teams issue a Final Audit Determination Letter
Talk about Liabilities under Program Review – process is the same

23. Audit – Finding Incorrect
Ask Auditor which Regulation or Law was Violated & Discuss a Reasonable Resolution
Indicate in CAP Reasons Why the Finding is Erroneous
Necessary for Audit Resolution Process
Provide Details to Support Position & Cite Regulation or Law in Support of Assertion
If an institution feels the finding the auditor has cited is incorrect, it should ask the auditor to identify the exact regulation or law that has been violated and then discuss a reasonable resolution. The institution should then indicate in its Corrective Action Plan the reasons it disagrees with the auditor’s conclusions and provide a detailed reason(s) the auditor’s exception is incorrect.
This information will be reviewed along with the auditor’s finding during the audit resolution process performed by ED. Be sure to include all regulatory or statutory citations that apply in support of your assertion.

24. Audit Findings-High Dollar
R2T4 Calculation Errors, Not Made or Made Late
Audit Report Not Submitted – Closed School
Verification Violations
Attendance Records Missing/Policy Inadequate
Audit Report Not Submitted – Closed School – anytime a close-out audit is not received from an institution that has closed, the institution will be assessed a liability based on all the unaudited funds received. That liability is established with our Finance Office and referred to the Department of Justice if not paid.

25. Audit Findings-High Dollar (Cont.)
Account Records Inadequate/Not Reconciled
Ineligible Branch/Location
FFEL Disbursements Attributed to Unattended/ Incorrect Payment Periods
Single Delivery of FFEL Proceeds/Improper Disbursement Schedule

26. Program Review Process Authority 34 CFR 668.24(f)
Select School for Review
Research Available Data
Determine Type of Review (On or Off-Site; Focused, General Assessment)
Notify the Institution & Request Information
Conduct Entrance Conference & Request Student Files
School Provides Access to Records (FERPA 34 CFR , 99, 35) & FSA Performs Review

27. Program Review: Critical Items
Institutional & Program Eligibility
Fiscal & FISAP Review
Financial Responsibility
Campus Security
Incentive Compensation
Borrower Choice & Lender/GA Inducements
Managing Access to ED Systems

28. Program Review: Student Items
Attendance & SAP
Verification & PJ
Dependency Overrides
Cost of Attendance
Student Eligibility
R2T4 & ATB
Credit Balances
Enrollment Status
Calculations & Disbursements-Title IV Funds

29. Program Review Outcomes
Conduct Exit Conferences & Provide Preliminary Findings (Optional)
Analyze Workpapers, Prepare & Issue Program Review Report (May Include Total File Review &/or Change in Method of Payment)
If Institution Disagrees w/Finding(s) It Should Provide Details to Support Position
Review Institution’s Response
Make & Send Final Determinations

30. Program Review & Audit Liabilities
Must be Repaid within 45 Days of Receipt of the FPRD Unless:
Institution Makes Repayment Plan w/ED
Files an Appeal within 45 days
Appeal of Liabilities Must Include:
Findings, Issues & Facts Being Disputed
School’s Position w/ Pertinent Facts & Reasons for Position Clearly Stated
Copy of Final Audit or PR Determination Letter

31. PR Findings-High Dollar
Improper/Undocumented Dependency Overrides
Pell- Ineligible Pell Disbursements
Ability to Benefit Violations
Refunds Calculation-Most Fair & Equitable Not Used
Falsification of Records
These are some of the High Dollar findings we identified in FY 2007
Improper/Undocumented Dependency Overrides
Pell- Ineligible Pell Disbursements
Ability to Benefit Violations: Schools must properly document student file, tests must be administered by independent approved tester, tests cannot be altered or scored incorrectly, test results in student file must match those from the Independent Approved Testing Agency.
Refunds Calculation-Most Fair & Equitable Not Used
Falsification of Records

32. PR Findings-High Dollar (cont.)
Improper Certification of FFEL
Ineligible Program-Approval Requirements Not Met
Verification Violations
Pell-Overpayment/Underpayment
Fed Perkins Prom Note-Missing, Unsigned, Inaccurate
Additional high dollar findings.
Improper Certification of FFEL
Ineligible Program-Approval Requirements Not Met
Verification Violations
Pell-Overpayment/Underpayment
Fed Perkins Prom Note-Missing, Unsigned, Inaccurate

33. FSA Assessments
Self-assessment Tool Designed to Assist Schools in Evaluating their Financial Aid Policies, Processes, & Procedures
Includes Assessment Modules on Students, Schools, Managing Funds, and Policies and Procedures

34. Method of Payment
Advanced Funding – Most Schools Receive Title IV thru the Method
HCM 1–FSA Uses This Restriction Generally w/Financial Failure & Requires Additional Financial Reporting & Disbursements First
HCM 2 – More Strict Used w/Administrative Capability Concerns (Permits FSA to Sample Submission)
Reimbursement – Similar to HCM2 (No Sampling) Major Program Integrity Concerns

35. Program Compliance School Eligibility
Victoria Edwards, Chief Compliance Officer– DC (202) Robin Minor, General Manager – Wash DC (202)
Call the appropriate School Participation Team for information and guidance on audit resolution, financial analysis, program reviews, school and program eligibility/recertification and school closure information.
School Participation Teams – Northeast
Geneva Leon, Director – Wash DC
(202)
New York/Boston (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, New Jersey, New York, Puerto Rico, Virgin Islands)
William Swift – New York (646)
Rosemary Torpey - Boston (617) Elizabeth Coughlin-New York (646) Patrice Fleming - Wash DC (202)
Philadelphia (DC, Delaware, Maryland, Pennsylvania, Virginia, West Virginia)
Nancy Gifford - Philadelphia (215)
John Loreng – Philadelphia (215)
Michael Frola - Wash DC (202)
Foreign Schools
Barbara Hemelt - Wash DC (202)
School Participation Teams-South Central
Carolyn White, Director – Wash DC
(202)
Atlanta (Alabama, Florida, Georgia, Mississippi, North Carolina, South Carolina)
Charles Engstrom - Atlanta (404) Christopher Miller – Atlanta (404)
Patricia Dickerson-Wash DC (202)
Dallas (Arkansas, Louisiana, New Mexico, Oklahoma, Texas)
Patrick Kennedy - Dallas (214)
Janet Dragoo - Dallas (214) Clifton Knight - Wash DC (202)
Kansas City (Iowa, Kansas, Kentucky, Missouri, Nebraska, Tennessee)
Ralph LoBosco-Kansas City (816) Dvak Corwin – Kansas City (816)
Phillip Brumback-Wash DC (202)
School Participation Teams - Northwest
Douglas Laine, Director – Wash DC
(202)
Chicago (Illinois, MN, Ohio, Wisconsin, IN)
Douglas Parrott - Chicago (312)
David Heath – Chicago (312) Earl Flurkey – Chicago (312)
Denver (Colorado, Michigan, Montana, North Dakota, South Dakota, Utah, Wyoming)
Harry Shriver - Denver (303) x116
Dan Whiting - Denver (303) x120
San Francisco/Seattle (American Samoa, Arizona, California, Guam, Hawaii, Nevada, Palau, Marshall Islands, N. Marianas State of Micronesia, Alaska, Idaho, Oregon, Wash.)
Linda Henderson- San Fran (415)
Martina Fernandez-Rosario (415)
Dyon Toney - Wash DC (202)

36. Handy Websites Schools Portal: www.fsa4schools.ed.gov
Students Portal:
Information for Financial Aid Professionals:
School & Program Eligibility/Recertification:

37. We appreciate your feedback & comments
Happy Holidays!!
We appreciate your feedback & comments
Douglas Parrott (312)
Geneva Leon (202)