Program Reviews, Sanctions, & Closeout

In this chapter we discuss program reviews conducted at schools, sanctions and corrective actions, and procedures for schools that are ending their participation in one or more of the FSA programs.

The Department of Education oversees the FSA programs to ensure they are administered properly. One way we do this is by conducting program reviews to confirm that schools meet FSA requirements for institutional eligibility, financial responsibility, and administrative capability. Program reviews identify compliance problems and suggest corrective actions. To assess your school’s compliance with the provisions of this chapter, see the institutional eligibility module on the FSA Assessments website.

If a school is cited in a program review for improperly disbursing FSA program funds or other serious violations, it must restore the funds as appropriate. In addition to having to restore the funds it dispersed in error, a school may also be subject to correction actions and sanctions such as fines, emergency action, limitation, suspension, or termination, as discussed later in this chapter.

A program review covers many of the same areas as an audit (see Chapter 4), including fiscal operations and accounting procedures as well as compliance with the specific program requirements for student eligibility and awards. However, program reviews are not conducted annually at every school; priority is according to criteria specified in the law and given to schools that

Department program reviewers will

A program review may be either a general assessment review, a focused review, or a compliance assurance review. A general assessment review is the most common type of review and is normally conducted to evaluate the school’s overall performance in meeting FSA administrative and financial requirements. A focused review is normally conducted to determine if the school has problems with specific areas of FSA program compliance. A compliance assurance review is a tool that is used to help validate the Department’s risk assessment system.

For general assessment, compliance assurance, and some focused reviews, the review team will randomly select student files. In general, a sample consists of 15 students from each award year under review. The review team will analyze the academic file, student account ledger, student financial aid file, and admissions file for each student in the sample.

Reviewers will also examine school records that are not specific to in- dividual students. These records include required policies and procedures, fiscal records, and consumer information (i.e., the school’s website, school catalog[s], pamphlets, etc.).

It may be necessary for the reviewer to conduct interviews with school officials, including academic or education personnel or the registrar, admissions personnel, financial aid personnel, fiscal office personnel, placement officers, and/or campus security personnel. In addition, the reviewer may interview students.

Program reviews are typically conducted at the institution. However, in some circumstances institutions are asked to submit copies of selected records to the Department for review at its offices, and interviews are con- ducted via telephone rather than in person.

Most reviews are announced up to 30 days before by a telephone call to the president and financial aid administrator. The school also receives written notice of the review and is asked to provide relevant materials (e.g., policies and procedures, consumer publications, a list of FSA recipients) prior to it. The school will also be expected to make other records available on-site at the start of the review. In some cases, notice is given the day before (via overnight delivery or fax), the morning of the review (via fax), or at the time the review team arrives at the school.

Schools are required to cooperate with the Department in a program review and provide unrestricted access to any and all information re- quested to conduct the review. Access includes the right to copy records (including computer records), examine computer programs and data, and interview employees without the presence of management or the presence of the school’s or a servicer’s tape recorder. Failure to provide this access to the program review team may lead to an adverse administrative action.

Also, the Department has the authority to issue administrative subpoenas to assist in conducting investigations of possible violations of the provisions of FSA programs. The law authorizes the Department to request the Attorney General to invoke the assistance of any court of the United States for purposes of enforcing a subpoena if necessary.

For its part in program reviews, the Department is required to

The HEA requires that each state, through at least one state agency, must

The review team will hold an entrance conference with school officials at the beginning of the review. The purpose of the entrance conference is to provide school officials with information about the review and the program review process and for reviewers to learn how federal student aid is processed at the school.

The review team will hold an exit or status conference at the end of a program review. The purpose of the exit conference is to inform school officials about the next steps in the process, summarize preliminary findings, advise school officials of any immediate changes that must be made, and/or provide details of any remaining outstanding items. If the fieldwork is not complete or the data has not been fully analyzed, a status meeting is conducted. A return visit may be necessary or an exit conference may be conducted via telephone after further analysis is completed.

The program review team prepares a preliminary written report after completion of the review. In most instances, this report will be sent to the school within 75 days of the review. The school may respond to this report if it wishes to offer additional information to support its position or if it disagrees with any of the report’s findings. When the Department has fully considered the school’s response and any additional documentation provided by the school, the Department will send a Final Program Review Determination (FPRD) letter to the school.

An FPRD is a report that includes each finding identified in the program review report, the school’s response, and the Department’s final determination. The FPRD may require the school to take further action to resolve one or more of the findings. This action may include making student level adjustments in COD and the G5 payment system, and paying liabilities to the Department, student, or lenders on behalf of the student.

Any funds the school owes as a result of the FPRD must be repaid within 45 days of the school’s receipt of the FPRD unless the school submits an appeal to the Department or enters into a payment plan with the Department’s Financial Management Group. The cover letter of the FPRD provides instructions on how to file an appeal. If payment or an appeal is not received within 45 days, the Department may elect to use administrative offset to collect the funds owed.

Only final audit or program review determinations may be appealed. The letter conveying a final determination is clearly identified as a Final Audit (or Program Review) Determination Letter and explains the appeals procedures.

If a school has violated the FSA program regulations, the Department may, at its sole discretion, allow the school to respond to the problem and indicate how it will correct it. However, if the school has repeatedly violated the law or regulations or the Department has determined that the violations are egregious, it may sanction the school.

Sanctions include emergency actions, fines, limitations, suspensions, and terminations (see the following descriptions under “Corrective Actions and Sanctions”). The Department may initiate actions against any school that

In addition, the Department has the authority to terminate a school or program that no longer meets the eligibility criteria given in Chapter 1.

Similarly, the Department may also sanction a third-party servicer that performs functions related to the FSA programs. Further, the Department has the authority to sanction a group of schools or servicers if it finds that a person or entity with substantial control over all schools or servicers within the group has violated any of the FSA program requirements or has been suspended or debarred from program participation. See Chapters 1 and 4.

The law provides that any person who knowingly and willfully embezzles; misapplies; steals; obtains by fraud, false statement, or forgery; or fails to refund any funds, assets, or property provided or insured under Title IV of the Higher Education Act; or attempts to commit any of these crimes will be fined up to $20,000 or imprisoned for up to five years, or both. If the amount of funds involved in the crime is $200 or less, the penalties are fines up to $5,000 or imprisonment up to one year, or both.

Any person who knowingly and willfully makes false statements, furnishes false information, or conceals material information in connection with the assignment of an FSA program loan or attempts to do so, will, upon conviction, be fined up to $10,000 or imprisoned for up to one year, or both. This penalty also applies to any person who knowingly and willfully

A school may stop participating in the FSA programs voluntarily or may be required to leave involuntarily, as described below. In either situation, it must follow the closeout procedures specified in the FSA regulations.

A school’s participation ends in the following circumstances:

In general, when a school ceases to be eligible due to failing to meet statutory or regulatory requirements, it must notify its School Participation Division within 30 days of its loss of eligibility to participate in the FSA programs. The school must also do the following:

In addition, a school that closes must refund to the federal government or, following written instructions from the Department, otherwise distribute any unexpended FSA funds it has received (minus its administrative cost allowance, if applicable).

If a school’s participation ends during a payment period or if a program loses its eligibility, but the school continues to provide education in the formerly eligible program until the end of the payment or enrollment period, the school may use FSA funds it possesses to

A commitment under the Pell and TEACH grant programs occurs when an enrolled student is attending a school and has submitted a valid student aid report to it or when the school has received a valid institutional student information report. A commitment under the Campus-Based Programs occurs when a student is enrolled and attending the school and has received a notice from the school of the amount that he or she can expect to receive and how and when that amount will be paid.

The Department may permit a school to continue to originate, award, or disburse Title IV funds for no more than 120 days following the date of a final, non-appealable decision by a state authorizing agency to remove its authorization; by an accrediting agency to withdraw, suspend, or terminate accreditation; or by the Department to end the school’s participation in the FSA programs. The school’s accrediting agency and state must agree with the transitional operation, and the school must

A school must submit a teach-out plan to its accrediting agency if

A separate closeout audit is not required if a school closes an additional location or a branch campus because the next due compliance audit for the school must report on the use of FSA program funds at the closed location. However, the school must notify the Department of the additional location or branch closure. See Chapter 5 for information on reporting information to the Department.

When an additional location or branch closes and borrowers who attended the school obtain loan discharges by reason of the closure of the location or branch (or improper ATB or loan certifications), the Department will pursue recovery against the larger institution, its affiliates, and its principals.

If a school is notified that it has lost its eligibility to participate in the Direct Loan Program and the school does not intend to appeal the decision, it must immediately inform all current and prospective students of its loss of eligibility. The school must also explain that it can no longer originate Direct Loans for students or parents. If the school appeals its loss of eligibility within the required timeframe, the school may continue originating Direct Loans during the appeal process. Once a final decision on the appeal is made, the school must take the actions described in the Department’s final appeal determination letter.

If a school plans to withdraw from participation in the Direct Loan Program, it must notify the Department of its decision in writing. Once the effective date of withdrawal has been established, the school is prohibited from disbursing loan funds to students. However, if the school made a first disbursement to some students before its loss of eligibility, it may still be able to make a subsequent disbursement to those students. See the conditions in 34 CFR 668.26(d).

Students enrolled at a school that loses eligibility or discontinues participation in the Direct Loan program can continue to receive interest subsidies if they enroll and remain enrolled at an eligible school.